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PROSPECTUS
DECEMBER 20, 1996
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA INVESTMENT DIMENSIONS GROUP INC. (the "Fund"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, (310) 395-8005, is an open-end
management investment company whose shares are offered, without a sales charge,
generally to institutional investors and clients of registered investment
advisers.
DOMESTIC EQUITY PORTFOLIOS
U.S. 9-10 SMALL COMPANY PORTFOLIO U.S. SMALL CAP VALUE PORTFOLIO
U.S. 6-10 SMALL COMPANY PORTFOLIO U.S. LARGE CAP VALUE PORTFOLIO
U.S. LARGE COMPANY PORTFOLIO DFA REAL ESTATE SECURITIES PORTFOLIO
ENHANCED U.S. LARGE COMPANY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIOS
JAPANESE SMALL COMPANY PORTFOLIO CONTINENTAL SMALL COMPANY PORTFOLIO
PACIFIC RIM SMALL COMPANY PORTFOLIO LARGE CAP INTERNATIONAL PORTFOLIO
UNITED KINGDOM SMALL COMPANY PORTFOLIO RWB/DFA INERNATIONAL HIGH BOOK TO
EMERGING MARKETS PORTFOLIO MARKET PORTFOLIO
EMERGING MARKETS SMALL CAP PORTFOLIO DFA INTERNATIONAL SMALL CAP
VALUE PORTFOLIO
INTERNATIONAL SMALL COMPANY PORTFOLIO
FIXED INCOME PORTFOLIOS
DFA ONE-YEAR FIXED INCOME PORTFOLIO DFA TWO-YEAR GOVERNMENT PORTFOLIO
DFA TWO-YEAR CORPORATE FIXED DFA FIVE-YEAR GOVERNMENT PORTFOLIO
INCOME PORTFOLIO DFA INTERMEDIATE GOVERNMENT
DFA TWO-YEAR GLOBAL FIXED INCOME PORTFOLIO FIXED INCOME PORTFOLIO
DFA GLOBAL FIXED INCOME PORTFOLIO
EACH OF THE U.S. 6-10 SMALL COMPANY, U.S. LARGE COMPANY, ENHANCED U.S.
LARGE COMPANY, JAPANESE SMALL COMPANY, PACIFIC RIM SMALL COMPANY, UNITED KINGDOM
SMALL COMPANY AND CONTINENTAL SMALL COMPANY, DFA ONE-YEAR FIXED INCOME, DFA
TWO-YEAR CORPORATE FIXED INCOME, DFA TWO-YEAR GLOBAL FIXED INCOME, DFA TWO-YEAR
GOVERNMENT, U.S. SMALL CAP VALUE, U.S. LARGE CAP VALUE, RWB/DFA INTERNATIONAL
HIGH BOOK TO MARKET, EMERGING MARKETS AND EMERGING MARKETS SMALL CAP PORTFOLIO
(COLLECTIVELY, THE "FEEDER PORTFOLIOS"), UNLIKE MANY OTHER INVESTMENT COMPANIES
WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, SEEKS TO
ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING SERIES OF SHARES OF THE DFA INVESTMENT TRUST COMPANY (THE
"TRUST"), AN OPEN-END, MANAGEMENT INVESTMENT COMPANY THAT ISSUES SERIES
(INDIVIDUALLY AND COLLECTIVELY, THE "SERIES") HAVING THE SAME INVESTMENT
OBJECTIVE, POLICIES AND LIMITATIONS AS EACH OF THE FEEDER PORTFOLIOS. THE
INVESTMENT EXPERIENCE OF EACH FEEDER PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE
INVESTMENT EXPERIENCE OF ITS CORRESPONDING SERIES. INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION, SEE "THE FEEDER
PORTFOLIOS." THE INTERNATIONAL SMALL COMPANY PORTFOLIO SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE BY INVESTING IN FOUR SERIES OF THE TRUST.
This prospectus sets forth concisely information about the Fund that
prospective investors should know before investing and should be read carefully
and retained for future reference. A statement of additional information about
the Fund, dated December 20, 1996, as amended from time to time, which is
incorporated herein by reference, has been filed with the Securities and
Exchange Commission and is available upon request, without charge, by writing or
calling the Fund at the above address or telephone number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
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HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 9
THE FEEDER PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SMALL COMPANY PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 25
PORTFOLIO CHARACTERISTICS AND POLICIES -
SMALL COMPANY PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . 25
U.S. 6-10 Small Company Portfolio . . . . . . . . . . . . . . . . . . . 25
U.S. 9-10 Small Company Portfolio . . . . . . . . . . . . . . . . . . . 26
Japanese Small Company Portfolio. . . . . . . . . . . . . . . . . . . . 26
United Kingdom Small Company Portfolio. . . . . . . . . . . . . . . . . 26
Continental Small Company Portfolio . . . . . . . . . . . . . . . . . . 27
Pacific Rim Small Company Portfolio . . . . . . . . . . . . . . . . . . 27
International Small Company Portfolio . . . . . . . . . . . . . . . . . 28
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 30
U.S. LARGE COMPANY PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . 30
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 30
ENHANCED U.S. LARGE COMPANY PORTFOLIO . . . . . . . . . . . . . . . . . . . 31
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 31
STANDARD & POOR'S - INFORMATION AND DISCLAIMERS . . . . . . . . . . . . . . 32
LARGE CAP INTERNATIONAL PORTFOLIO . . . . . . . . . . . . . . . . . . . . . 32
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 32
DFA REAL ESTATE SECURITIES PORTFOLIO. . . . . . . . . . . . . . . . . . . . 34
Portfolio Characteristics and Policies. . . . . . . . . . . . . . . . . 34
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 35
VALUE PORTFOLIOS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Portfolio Characteristics and Policies. . . . . . . . . . . . . . . . . 35
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 36
RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO . . . . . . . . . . . . 37
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 37
DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO . . . . . . . . . . . . . . . . 38
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 38
EMERGING MARKETS PORTFOLIO AND EMERGING MARKETS SMALL CAP PORTFOLIO . . . . 40
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 40
Series' Characteristics and Policies. . . . . . . . . . . . . . . . . . 40
Portfolio Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECURITIES LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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INVESTMENT OBJECTIVES AND POLICIES -
FIXED INCOME PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . 42
DFA One-Year Fixed Income Portfolio . . . . . . . . . . . . . . . . . . 42
DFA Two-Year Corporate Fixed Income Portfolio . . . . . . . . . . . . . 43
DFA Two-Year Global Fixed Income Portfolio. . . . . . . . . . . . . . . 43
DFA Global Fixed Income Portfolio . . . . . . . . . . . . . . . . . . . 43
DFA Two-Year Government Portfolio . . . . . . . . . . . . . . . . . . . 44
DFA Five-Year Government Portfolio. . . . . . . . . . . . . . . . . . . 44
DFA Intermediate Government Fixed Income Portfolio. . . . . . . . . . . 44
Description of Investments. . . . . . . . . . . . . . . . . . . . . . . 45
Investments in the Banking Industry . . . . . . . . . . . . . . . . . . 46
Portfolio Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
RISK FACTORS - ALL PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . 47
Small Company Securities. . . . . . . . . . . . . . . . . . . . . . . . 47
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Investing in Emerging Markets . . . . . . . . . . . . . . . . . . . . . 48
Foreign Currencies and Related Transactions . . . . . . . . . . . . . . 49
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Portfolio Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . 49
Futures Contracts and Options on Futures. . . . . . . . . . . . . . . . 50
Options on Stock Indices. . . . . . . . . . . . . . . . . . . . . . . . 50
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Banking Industry and Real Estate Concentrations . . . . . . . . . . . . 51
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 52
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Investment Services - United Kingdom and Continental Small Company
Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Investment Services - Japanese and Pacific Rim Small Company Series . . 54
Administrative Services - The Feeder Portfolios and International
Small Company Portfolio . . . . . . . . . . . . . . . . . . . . . . . 55
Client Service Agent - RWB/DFA International High Book to Market
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . 56
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . 56
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
In Kind Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
VALUATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Public Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . 61
DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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HIGHLIGHTS
PAGE
THE FUND
This prospectus relates to twenty-four separate Portfolios of the Fund.
Each Portfolio, in effect, represents a separate mutual fund with its own
investment objective and policies. The investment objective of each Portfolio
is a fundamental policy and may not be changed without the affirmative vote of a
majority of its outstanding securities. Investors may choose to invest in one
or more of the Portfolios. Proceeds from the sale of shares of a Portfolio will
be invested in accordance with that Portfolio's investment objective and
policies. A shareholder will be entitled to a pro rata share of all dividends
and distributions arising from the assets of the Portfolio in which he invests.
Upon redeeming shares, a shareholder will receive the current net asset value
per share of the Portfolio represented by the redeemed shares.
INVESTMENT OBJECTIVES - SMALL COMPANY PORTFOLIOS 25
The investment objective of each of these Portfolios: U.S. 9-10 Small
Company Portfolio, U.S. 6-10 Small Company Portfolio, Japanese Small Company
Portfolio, United Kingdom Small Company Portfolio, Continental Small Company
Portfolio, Pacific Rim Small Company Portfolio and International Small Company
Portfolio (the "Small Company Portfolios") is to achieve long-term capital
appreciation by investing in marketable stocks of small companies. The size of
a company will be measured by its relative market capitalization. Each
Portfolio, except the U.S. 9-10 Small Company and International Small Company
Portfolios, invests all of its assets in a corresponding Series of the Trust.
The International Small Company Portfolio invests all of its assets in four
Series of the Trust: Japanese Small Company, Pacific Rim Small Company, United
Kingdom Small Company and Continental Small Company Series (collectively, the
"Underlying Series"). Each corresponding Series of the Trust and U.S. 9-10
Small Company Portfolio will be structured by generally basing the amount of
each security purchased on the issuer's relative market capitalization, applied
on a basis of descending values, with a view to achieving a reasonable
reflection of the relative market capitalizations of its portfolio companies.
(See "PORTFOLIO CHARACTERISTICS AND POLICIES - THE SMALL COMPANY PORTFOLIOS.")
INVESTMENT OBJECTIVE - U.S. LARGE COMPANY PORTFOLIO 30
The investment objective of U.S. Large Company Portfolio is to approximate
the investment performance of the S&P 500 Index. The Portfolio invests all of
its assets in U.S. Large Company Series of the Trust, which in turn invests in
the stocks which comprise the S&P 500 Index in approximately the same
proportions as they are represented in the S&P 500 Index.
INVESTMENT OBJECTIVES - ENHANCED U.S. LARGE COMPANY PORTFOLIO 31
The investment objective of the Enhanced U.S. Large Company Portfolio is to
achieve a total return which exceeds the total return performance of the S&P 500
Index. The Portfolio will invest all of its assets in the Enhanced U.S. Large
Company Series of the Trust. The Series may invest in all of the stocks
represented in the S&P 500 Index, options on stock indices, stock index futures
and options thereon, swap agreements on stock indices, shares of investment
companies that invest in stock indices and short-term fixed income obligations.
INVESTMENT OBJECTIVE - LARGE CAP INTERNATIONAL PORTFOLIO 32
The investment objective of Large Cap International Portfolio is to achieve
long-term capital appreciation. The Portfolio will invest in a market-weighted
portfolio of the stocks of large non-U.S. companies.
INVESTMENT OBJECTIVE - DFA REAL ESTATE SECURITIES PORTFOLIO 34
The investment objective of DFA Real Estate Securities Portfolio is to
achieve long-term capital appreciation. The Portfolio will invest in readily
marketable equity securities of companies whose principal business is in the
real estate industry.
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INVESTMENT OBJECTIVES - VALUE PORTFOLIOS 35
The investment objective of both U.S. Large Cap Value Portfolio and U.S.
Small Cap Value Portfolio (collectively the "Value Portfolios") is to achieve
long-term capital appreciation. U.S. Large Cap Value Portfolio and U.S. Small
Cap Value Portfolio will invest all of their assets in U.S. Large Cap Value
Series and U.S. Small Cap Value Series (collectively, the "Value Series") of the
Trust, respectively, which in turn will invest in common stocks of U.S.
companies that have a high book value in relation to their market value.
INVESTMENT OBJECTIVE - RWB/DFA INTERNATIONAL HIGH BOOK TO
MARKET PORTFOLIO 37
The investment objective of the RWB/DFA International High Book to Market
Portfolio is to achieve long-term capital appreciation. The Portfolio will
invest all of its assets in The DFA International Value Series of the Trust,
which in turn will invest in the stocks of large non-U.S. companies that have a
high book value in relation to their market value.
INVESTMENT OBJECTIVE - DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO 38
The investment objective of the Portfolio is to achieve long-term capital
appreciation. The Portfolio will invest in the stocks of small non-U.S.
companies that have a high book value in relation to their market value.
INVESTMENT OBJECTIVES - EMERGING MARKETS PORTFOLIO AND EMERGING MARKETS
SMALL CAP PORTFOLIO 40
The investment objective of both the Emerging Markets Portfolio and the
Emerging Markets Small Cap Portfolio is to achieve long-term capital
appreciation. The Emerging Markets Portfolio will invest all of its assets in
the Emerging Market Series of the Trust, which in turn invests in the equity
securities of larger companies in emerging markets. The Emerging Markets Small
Cap Portfolio will invest all of its assets in the Emerging Markets Small Cap
Series of the Trust, which in turn invests in the equity securities of smaller
companies in emerging markets.
INVESTMENT OBJECTIVES - FIXED INCOME PORTFOLIOS 42
The investment objective of DFA One-Year Fixed Income Portfolio is to
achieve stable real value of capital with a minimum of risk. The Portfolio
invests all of its assets in DFA One-Year Fixed Income Series of the Trust.
Generally, the Series will acquire high quality obligations which mature within
one year from the date of settlement; however, when greater returns are
available substantial investments may be made in securities maturing within two
years from the date of settlement as well. In addition, the Series intends to
concentrate investments in the banking industry under certain circumstances.
(See "INVESTMENT OBJECTIVES AND POLICIES - THE FIXED INCOME PORTFOLIOS" and
"Investments in the Banking Industry.")
The investment objective of DFA Two-Year Corporate Fixed Income Portfolio
is to maximize total returns consistent with the preservation of capital. The
Portfolio will invest all of its assets in DFA Two-Year Corporate Fixed Income
Series of the Trust. Generally, the Series will acquire high quality
obligations which mature within two years from the date of settlement. In
addition, the Series intends to concentrate investments in the banking industry
under certain circumstances. (See "INVESTMENT OBJECTIVES AND POLICIES - THE
FIXED INCOME PORTFOLIOS" and "Investments in the Banking Industry.")
The investment objective of DFA Two-Year Global Fixed Income Portfolio is
to maximize total returns consistent with preservation of capital. The
Portfolio will invest all of its assets in DFA Two-Year Global Fixed Income
Series of the Trust. The Series will invest in obligations issued or guaranteed
by the U.S. and foreign governments, their agencies and instrumentalities,
corporate debt obligations, bank obligations, commercial paper, and obligations
of other foreign issuers and supranational organizations which mature within two
years from the date of settlement. In addition, the Series intends to
concentrate investments in the banking industry under certain circumstances.
(See "INVESTMENT OBJECTIVES AND POLICIES - THE FIXED INCOME PORTFOLIOS" and
"Investments in the Banking Industry.")
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The investment objective of DFA Two-Year Government Portfolio is to
maximize total returns available from the universe of debt obligations of the
U.S. Government and U.S. Government agencies and consistent with preservation of
capital. The Portfolio will invest all of its assets in DFA Two-Year Government
Series of the Trust. Generally, the Series will acquire U.S. Government
obligations and U.S. Government agency obligations that mature within two years
from the date of settlement and repurchase agreements.
The investment objective of DFA Five-Year Government Portfolio is to
maximize total returns available from the universe of high quality debt
obligations. The Portfolio will invest only in obligations of the U.S.
Government and U.S. Government agencies which mature within five years from the
date of settlement and repurchase agreements.
The investment objective of DFA Intermediate Government Fixed Income
Portfolio is to earn current income consistent with preservation of capital.
The Portfolio will invest in non-callable obligations of the U.S. Government and
U.S. Government agencies, AAA-rated, dollar-denominated obligations of foreign
governments and supranational organizations, and futures contracts on U.S.
Treasury securities.
The investment objective of DFA Global Fixed Income Portfolio is to provide
a market rate of return for a fixed income portfolio with low relative
volatility of returns. The Portfolio invests in the obligations issued or
guaranteed by the U.S. and foreign governments and their agencies, obligations
of other foreign issuers rated AA or better, corporate debt obligations, bank
obligations, commercial paper and supranational organizations.
RISK FACTORS 47
Japanese Small Company Portfolio, United Kingdom Small Company Portfolio,
Continental Small Company Portfolio, Pacific Rim Small Company Portfolio,
International Small Company Portfolio, Large Cap International Portfolio, DFA
International Small Cap Value Portfolio, RWB/DFA International High Book to
Market Portfolio, Emerging Markets Portfolio and Emerging Markets Small Cap
Portfolio (collectively, the "International Equity Portfolios"), DFA Two-Year
Global Fixed Income Portfolio, Enhanced U.S. Large Company Portfolio and DFA
Global Fixed Income Portfolio (directly or indirectly through their investment
in the Trust Series) invest in foreign securities which are traded abroad.
DFA One-Year Fixed Income Series, DFA Two-Year Corporate Fixed Income
Series and DFA Two-Year Global Fixed Income Series and Enhanced U.S. Large
Company Series of the Trust, in which the corresponding Feeder Portfolios
invest, are authorized to invest in dollar-denominated obligations of U.S.
subsidiaries and branches of foreign banks and dollar-denominated obligations of
foreign issuers traded in the U.S. The DFA One-Year Fixed Income Series, DFA
Two-Year Corporate Fixed Income Series and DFA Two-Year Global Fixed Income
Series also are authorized to concentrate investments in the banking industry in
certain circumstances. DFA Real Estate Securities Portfolio will concentrate
its investments in the real estate industry.
DFA Intermediate Government Fixed Income Portfolio may invest in futures
contracts on obligations of the U.S. Government. Large Cap International
Portfolio, the RWB/DFA International High Book to Market Portfolio and DFA Real
Estate Securities Portfolio may invest in stock index futures contracts and
options thereon and the U.S. Large Company, the Value and Enhanced U.S. Large
Company Series of the Trust, in which the corresponding Portfolios invest, also
may purchase and sell index futures and options thereon. The Enhanced U.S.
Large Company Series and its corresponding Feeder Portfolio also may invest in
options on stock indices and swap agreements on stock indices.
All of the Portfolios are authorized to invest in repurchase agreements.
All of the above described policies involve certain risks. The policy of the
Feeder Portfolios to invest in the shares of corresponding Series of the Trust
also involves certain risks. (See "RISK FACTORS - ALL PORTFOLIOS" and "THE
FEEDER PORTFOLIOS.")
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MANAGEMENT AND ADMINISTRATIVE SERVICES 52
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment advisor
to each of the Portfolios, except the Feeder Portfolios, and to each Series of
the Trust. Dimensional Fund Advisors Ltd. serves as sub-advisor of United
Kingdom and Continental Small Company Series of the Trust. DFA Australia Pty
Limited serves as sub-advisor of Japanese and Pacific Rim Small Company Series
of the Trust. The Advisor provides each Feeder Portfolio and International
Small Company Portfolio with certain administrative services. Reinhardt Werba
Bowen Advisory Services serves as client service agent to the RWB/DFA
International High Book to Market Portfolio. (See "MANAGEMENT OF THE FUND.")
DIVIDEND POLICY 56
The Domestic and International Equity Portfolios, except for U.S. Large
Company, Enhanced U.S. Large Company and U.S. Large Cap Value Portfolios, each
distribute substantially all of their own net investment income in December of
each year. U.S. Large Company, Enhanced U.S. Large Company, U.S. Large Cap
Value, DFA Two-Year Corporate Fixed Income, DFA Two-Year Government, DFA
Intermediate Government Fixed Income, DFA Two-Year Global Fixed Income and DFA
Global Fixed Income Portfolios distribute dividends from their net investment
income quarterly. DFA One-Year Fixed Income Portfolio distributes dividends
from its net investment income monthly. DFA Five-Year Government Portfolio
distributes dividends from net investment income semi-annually. The Portfolios
will make any distributions from realized net capital gains on an annual basis.
(See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
PURCHASE, VALUATION AND REDEMPTION OF SHARES 58
Shares of the International Equity Portfolios, except United Kingdom Small
Company, Large Cap International and RWB/DFA International High Book to Market
Portfolios, may be purchased at a public offering price, which is equal to the
net asset value of their shares, plus a reimbursement fee, equal to 1% of such
value of the shares of Continental and Pacific Rim Small Company Portfolios and
the Emerging Markets Small Cap Portfolio; 0.50% of the net asset value of the
shares of Japanese Small Company Portfolio and Emerging Markets Portfolio; 0.70%
of the net asset value of the shares of DFA International Small Cap Value
Portfolio; and 0.675% of the net asset value of the shares of International
Small Company Portfolio. The reimbursement fee is paid to the Portfolio whose
shares are purchased and used to defray the costs associated with investment of
the proceeds from the sale of its shares. No reimbursement fee is assessed in
connection with any purchase of shares by exchange between International Small
Company Portfolio and any of the Feeder Portfolios which invest in the
Underlying Series. The shares of the remaining Portfolios are sold at net asset
value. The redemption price of the shares of all of the Portfolios is equal to
the net asset value of their shares.
The value of the shares issued by each Feeder Portfolio and International
Small Company Portfolio will fluctuate in relation to the investment experience
of the Series of the Trust in which such Portfolios invest. The value of the
shares issued by all other Portfolios will fluctuate in relation to their own
investment experience. Unlike shares of money market funds, the shares of DFA
One-Year Fixed Income Portfolio will tend to reflect fluctuations in interest
rates because the corresponding Series of the Trust in which the Portfolio
invests does not seek to stabilize the price of its shares by use of the
"amortized cost" method of securities valuation. (See "PURCHASE OF SHARES,"
"VALUATION OF SHARES" and "REDEMPTION OF SHARES.")
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SHAREHOLDER TRANSACTION EXPENSES
REIMBURSEMENT FEES (as percentage of original purchase price)(1)
Japanese Small Company Portfolio 0.50%
Continental Small Company Portfolio 1.00%
Pacific Rim Small Company Portfolio 1.00%
Emerging Markets Portfolio 0.50%
Emerging Markets Small Cap Portfolio 1.00%
DFA International Small Cap Value Portfolio 0.70%
International Small Company Portfolio 0.675%
- -------------------------------------
(1) Reimbursement fees are charged to purchasers of shares and paid to these
Portfolios, except in the case of certain purchases permitted to be made by
exchange (see "EXCHANGE OF SHARES"). They serve to offset costs incurred by a
Portfolio when investing the proceeds from the sale of its shares and,
therefore, stabilize the return of the Portfolio for all existing shareholders.
(See "VALUATION OF SHARES - Public Offering Price" for a more complete
description of reimbursement fees.) The Japanese Small Company, Continental
Small Company, Pacific Rim Small Company, Emerging Markets and Emerging Markets
Small Cap Series of the Trust charge a reimbursement fee to purchasers of
shares, including International Small Company Portfolio, equal to the
reimbursement fee charged by its corresponding Feeder Portfolio as set forth
above.
Except as indicated below, the expenses in the following table are based on
those incurred by the Portfolios and Series for the fiscal year ended November
30, 1995.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MANAGEMENT ADMINISTRATION OTHER TOTAL OPERATING
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FEE FEE EXPENSES EXPENSES
----------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
U.S. 9-10 Small Company 0.50% -- 0.12% 0.62%
U.S. 6-10 Small Company(1) 0.03% 0.32% 0.14% 0.49%
U.S. Large Company(1)(3)
(after waivers and assumptions) 0.025% 0.125% -- 0.15%
Enhanced U.S. Large Company(1)(2) 0.05% 0.15% 0.52% 0.72%
U.S. Small Cap Value(1) 0.20% 0.30% 0.14% 0.64%
U.S. Large Cap Value(1) 0.10% 0.15% 0.17% 0.42%
</TABLE>
- -------------------------------------
(1) Feeder Portfolio
(2) "Other Expenses" are annualized estimates based on anticipated fees and
expenses through the fiscal year ending November 30, 1996. With respect to
International Small Company Portfolio, the amount set forth under
"Management Fee" reflects the indirect payment of a portion of the
management fee of each Underlying Series, which is equal to 0.10% of the
average net assets of such Series on an annual basis; the amounts set forth
under "Other Expenses" and "Total Operating Expenses" also reflect the
indirect payment of a portion of the expenses of the Underlying Series.
(3) Beginning August 9, 1996, the Advisor has agreed to waive .09% of the fee
payable under the administration agreement. The above figures have been
restated to reflect operating expenses as though that waiver had been in
effect during the fiscal year ended November 30, 1995.
5
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MANAGEMENT ADMINISTRATION OTHER TOTAL OPERATING
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FEE FEE EXPENSES EXPENSES
----------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
DFA Real Estate Securities(5) 0.30% 0.32% 0.62%
Japanese Small Company(1)(4) 0.10% 0.40% 0.26% 0.76%
Pacific Rim Small Company(1)(4) 0.10% 0.40% 0.36% 0.86%
United Kingdom Small Company(1)(4) 0.10% 0.40% 0.26% 0.76%
Emerging Markets(1) 0.10% 0.40% 1.08% 1.58%
Emerging Markets Small Cap(1) 0.20% 0.45% 0.95% 1.60%
Continental Small Company(1)(4) 0.10% 0.40% 0.26% 0.76%
International Small Company(2) 0.10% 0.40% 0.33% 0.83%
Large Cap International 0.25% 0.32% 0.57%
RWB/DFA International High Book to Market(1) 0.20% 0.20% 0.28% 0.68%
DFA International Small Cap Value(6) 0.65% 0.58% 1.23%
DFA One-Year Fixed Income(1) 0.05% 0.10% 0.05% 0.20%
DFA Two-Year Corporate Fixed Income(1)(2) 0.15% 0.05% 0.35% 0.55%
DFA Two-Year Global Fixed Income(1)(2) 0.05% 0.10% 0.30% 0.45%
DFA Global Fixed Income 0.25% 0.21% 0.46%
DFA Two-Year Government(1)(2) 0.15% 0.05% 0.39% 0.59%
DFA Five-Year Government 0.20% 0.08% 0.28%
DFA Intermediate Government Fixed Income 0.15% 0.12% 0.27%
</TABLE>
- -------------------------------------
(1) Feeder Portfolio
(2) "Other Expenses" are annualized estimates based on anticipated fees and
expenses through the fiscal year ending November 30, 1996. With respect to
International Small Company Portfolio, the amount set forth under
"Management Fee" reflects the indirect payment of a portion of the
management fee of each Underlying Series, which is equal to 0.10% of the
average net assets of such Series on an annual basis; the amounts set forth
under "Other Expenses" and "Total Operating Expenses" also reflect the
indirect payment of a portion of the expenses of the Underlying Series.
(4) Prior to August 9, 1996, the Feeder Portfolio invested its assets directly
in the stocks of small companies. The above figures have been restated to
reflect estimated aggregate annualized operating expenses of the Feeder
Portfolio and its corresponding Series as though the Feeder Portfolio's
assets had been invested in the Series during the fiscal year ended
November 30, 1995.
(5) Effective December 20, 1996, the investment advisory fee payable by the
Fund on behalf of the DFA Real Estate Securities Portfolio to the Adviser
was reduced from .325% of the Portfolio's average net assets on an annual
basis to .30% of the Portfolio's average net assets on an annual basis.
Effective December 11, 1996, the sub-advisory agreement between the Fund,
on behalf of the Portfolio, and Aldrich, Eastman and Waltch L.P. ("AEW")
terminated; pursuant to the terms of the sub-advisory agreement previously
in effect, the Portfolio paid AEW a fee equal to .175% of its average net
assets on an annual basis. The above figures have been restated to reflect
the reduction in the advisory fee and termination of the sub-advisory
agreement as though they were both in effect during the fiscal year ended
November 30, 1995. See "Management of the Fund."
(6) Annualized, based on fees and expenses incurred from December 30, 1994
(commencement of operations) to November 30, 1995.
6
<PAGE>
EXAMPLE
You would pay the following transaction and annual operating expenses on a
$1,000 investment in each Portfolio, assuming a 5% annual return over each of
the following time periods and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. 9-10 Small Company 6 20 35 77
U.S. 6-10 Small Company 5 16 27 62
U.S. Large Company 2 5 8 19
Enhanced U.S. Large Company 7 23 n/a n/a
U.S. Small Cap Value 7 20 36 80
U.S. Large Cap Value 4 13 24 53
DFA Real Estate Securities 6 20 35 77
Japanese Small Company 13 29 47 99
Pacific Rim Small Company 19 37 57 115
United Kingdom Small Company 8 24 42 94
Emerging Markets 21 55 91 192
Emerging Markets Small Cap 26 60 n/a n/a
Continental Small Company 18 34 52 103
International Small Company 15 33 n/a n/a
Large Cap International 6 18 32 71
RWB/DFA International High Book to Market 7 22 38 85
DFA International Small Cap Value 19 46 74 155
DFA One-Year Fixed Income 2 6 11 26
DFA Two-Year Corporate Fixed Income 6 18 n/a n/a
DFA Two-Year Global Fixed Income 5 14 n/a n/a
DFA Global Fixed Income 5 15 26 58
DFA Two-Year Government 6 19 n/a n/a
DFA Five-Year Government 3 9 16 36
DFA Intermediate Government Fixed Income 3 9 15 34
</TABLE>
The purpose of the above expense table and Example is to assist investors
in understanding the various costs and expenses that an investor in the
Portfolios will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
7
<PAGE>
With respect to the Feeder Portfolios and International Small Company
Portfolio, the table summarizes the aggregate annual operating expenses of
both the Portfolios and the Series of the Trust in which the Portfolios
invest. (See "MANAGEMENT OF THE FUND" for a description of Portfolio and
Series expenses.) The Board of Directors of the Fund has considered whether
such expenses will be more or less than they would have been if the Feeder
Portfolios invested directly in the securities held by the Trust Series. The
aggregate amount of expenses for a Feeder Portfolio and the corresponding
Trust Series may be greater than it would have been if the Portfolio were to
invest directly in the securities held by the corresponding Trust Series.
However, the total expense ratios for the Feeder Portfolios and the Trust
Series are expected to be less over time than such ratios would have been if
the Portfolios had continued to invest directly in the underlying securities.
This is because this arrangement enables various institutional investors,
including the Feeder Portfolios, to pool their assets, which may be expected
to result in economies by spreading certain fixed costs over a larger asset
base. Each shareholder in a Trust Series, including a Feeder Portfolio, will
pay its proportionate share of the expenses of that Trust Series. By
investing in shares of the Underlying Series, International Small Company
Portfolio will indirectly bear its pro rata share of the operating expenses,
management expenses and brokerage costs of such Series, as well as the
expense of operating the Portfolio.
The Enhanced U.S. Large Company, DFA Two-Year Corporate Fixed Income, DFA
Two-Year Global Fixed Income, DFA Two-Year Government, Emerging Markets Small
Cap (and their corresponding Trust Series) and International Small Company
Portfolios are new and, therefore, the above example is based on estimated
expenses for the current and next two fiscal years and does not extend those
estimates over five and ten-year periods.
During the fiscal year ended November 30, 1995, the Advisor agreed to
bear all of the ordinary operating expenses of U.S. Large Company Portfolio
and its corresponding Series, except the investment advisory fee of the
Series and the administration fee of the Portfolio. Such expenses were not
subject to reimbursement by the Series and the Portfolio. Absent this
arrangement, the annualized ratio of expenses to average net assets for U.S.
Large Company Portfolio for the fiscal year ended November 30, 1995 would
have been 0.46%. As of December 1, 1995, pursuant to the terms of the
current administration agreement with respect to the U.S. Large Company
Portfolio, the Advisor agreed to waive its fees and/or assume the expenses of
the Portfolio to the extent (1) necessary to pay the ordinary operating
expenses of the Portfolio (except the administration fee); and (2) that the
indirect expenses the Portfolio bears as a shareholder of the Series, on an
annual basis, exceed 0.025% of the Portfolio's average net assets. Beginning
August 9, 1996, in addition to the waiver/assumption effective on December 1,
1995, the Adviser has agreed to assume expenses or waive the fee payable by
the U.S. Large Company Portfolio under the administration agreement by an
additional .09% of average assets on an annual basis.
From December 1, 1993 through August 8, 1996, the Advisor agreed to waive
its fee under the Investment Management Agreement with respect to DFA
International Value Series to the extent necessary to keep the cumulative
annual expenses of the Series to not more than 0.45% of average net assets of
the Series on an annualized basis. For the fiscal year ended November 30,
1995, the Advisor was not required to waive any portion of its fee pursuant
to such agreement.
Effective August 9, 1996, the Advisor has agreed to waive its
administrative fee and assume the direct expenses of the Japanese Small
Company, United Kingdom Small Company, Continental Small Company and Pacific
Rim Small Company Portfolios to the extent necessary to keep the direct
annual expenses of each Portfolio to not more than 0.47% of average net
assets of the Portfolio on an annualized basis; this arrangement does not
extend to the fees and expenses of the Trust Series.
The Advisor has agreed to waive its administration fee and assume the
direct expenses of the International Small Company Portfolio to the extent
necessary to keep the administration fee and direct annual expenses of the
Portfolio to not more than 0.45% of average net assets of the Portfolio on an
annualized basis; this arrangement does not extend to the fees and expenses
of the Underlying Series.
For purposes of waivers and/or expense assumptions, the annual expenses are
those expenses incurred in any period consisting of twelve consecutive months.
The Advisor retains the right in its sole discretion to modify or eliminate the
waiver of a portion of its fees or assumption of expenses in the future.
8
<PAGE>
For the fiscal year ended November 30, 1995, the following international
equity Portfolios or Series set forth below received the following net revenue
from a securities lending program which constituted a percentage of the average
daily net assets of the Portfolio or Series:
PORTFOLIO/SERIES NET REVENUE PERCENTAGE OF ASSETS
- ---------------- ----------- --------------------
Japanese Small Company $742,590 0.22%
Pacific Rim Small Company 52,899 0.03%
Continental Small Company 116,607 0.03%
Large Cap International 19,452 0.03%
International Value 239,860 0.05%
Domestic equity Portfolios implemented lending programs late in the year.
The income generated in these Portfolios for the fiscal year ended November
30, 1995 is not representative of the income that would be earned over a full
year.
CONDENSED FINANCIAL INFORMATION
The following financial highlights are part of the financial statements
of each Portfolio of the Fund. The information for each of the past fiscal
years has been audited by independent auditors. The information for the
six-month period ended May 31, 1996, and the information for the Enhanced
U.S. Large Company Portfolio for the period from July 3, 1996 (date of
commencement of operations) to October 31, 1996, has not been audited by
independent auditors. The financial statements, related notes, and the report
of the independent auditors covering such financial information and financial
highlights for the Fund's most recent fiscal year ended November 30, 1995,
are incorporated by reference into the Statement of Additional Information
from the Fund's Annual Report to shareholders for the year ended November 30,
1995. The financial statements, related notes and financial highlights for
the six-month period ended May 31, 1996, are incorporated by reference into
the Statement of Additional Information from the Fund's Semi-Annual Report to
shareholders for the six months ended May 31, 1996. The financial
statements, related notes and financial highlights of the Enhanced U.S. Large
Company Portfolio for the period from July 3, 1996 to October 31, 1996, are
included in the Statement of Additional Information. Further information
about each Portfolio's performance (except for the Enhanced U.S. Large
Company Portfolio) is contained in the Fund's Annual Report to shareholders
for the year ended November 30, 1995 and the Fund's Semi-Annual Report to
shareholders for the six months ended May 31, 1996. A copy of each of the
Annual Report (including the report of the independent auditors) and the
Semi-Annual Report may be obtained from the Fund upon request at no charge.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE U.S. 9-10 SMALL COMPANY PORTFOLIO
--------------------------------------------------------------------------------------------------------
Period Year Year Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
May 31 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.03 $8.49 $8.69 $7.75 $6.33 $5.34 $7.74 $7.66 $7.50 $8.94 $8.88
------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS 0.01 0.05 0.01 0.03 0.04 0.04 0.07 0.07 0.10 0.09 0.12
Net Investment Income
Net Gains (Losses) on
Securities (Realized
and Unrealized) 2.79 2.61 0.40 1.67 1.53 1.64 (1.77) 0.98 1.48 (1.53) 1.15
------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total From Investment
Operations 2.80 2.66 0.41 1.70 1.57 1.68 (1.70) 1.05 1.58 (1.44) 1.27
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.01) (0.04) (0.03) (0.05) (0.05) (0.07) (0.08) (0.09) (0.11) - (0.23)
Net Realized Gains (0.76) (0.08) (0.58) (0.71) (0.10) (0.62) (0.62) (0.88) (1 .31) - (0.98)
------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Distributions (0.77) (0.12) (0.61) (0.76) (0.15) (0.69) (0.70) (0.97) (1.42) - (1 .21)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $13.06 $11.03 $8.49 $8.69 $7.75 $6.33 $5.34 $7.74 $7.66 $7.50 $8.94
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 26.99%# 31.37% 5.06% 23.91% 25.24% 39.08% (24.09)% 16.09% 24.36% (16 .04)% 14.88%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period (thousands) $1,259,837 $925,474 $659,221 $630,918 $651,313 $722,289 $561,102 $949,291 $912,518 $788,821 $952,580
Ratio of Expenses to
Average Net Assets 0.61%* 0.62% 0.65% 0.70% 0.68% 0.64% 0.62% 0.62% 0.62% 0.61% 0.62%
Ratio of Net Investment
Income to Average
Net Assets 0.21%* 0.45% 0.16% 0.26% 0.53% 0.75% 0.99% 0.86% 1.19% 0.92% 1.14%
Portfolio Turnover Rate 22.46%* 24.65% 16.56% 9.87% 9.72% 10.13% 3.79% 7.86% 25.98% 23.05% 14.19%
Average Commission
Rate(1) $0.0582 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Adjusted to reflect a 1,900% stock dividend as of November 28, 1986)
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the
period for which commissions were charged, as required by the SEC for
fiscal years beginning after September 1, 1995.
10
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
THE U.S. 6-10 SMALL COMPANY PORTFOLIO THE U.S. LARGE COMPANY PORTFOLIO
-------------------------------------- --------------------------------
Period Year Year Year March Period Year Year Year Year Dec. 31
Ended Ended Ended Ended 20 to Ended Ended Ended Ended Ended 1990 to
May 31 Nov. 30 Nov. 30 Nov. 30 Nov. 30 May 31 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992 1991
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.64 $11.08 $11.43 $10.35 $10.00 $18.12 $13.58 $13.91 $13.12 $11.44 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income - 0.09 0.09 0.08 0.04 0.21 0.35 0.37 0.36 0.36 0.34
Net Gains (Losses) on
Securities (Realized
and Unrealized) 2.65 2.81 (0.07) 1.43 0.31 1.88 4.57 (0.22) 0.87 1.69 1.34
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total From Investment
Operations 2.65 2.90 0.02 1.51 0.35 2.09 4.92 0.15 1.23 2.05 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment
Income (0.02) (0.14) (0.09) (0.11) - (0.14) (0.36) (0.37) (0.44) (0.37) (0.24)
Net Realized Gains (0.40) (1.20) (0.28) (0.32) - (0.01) (0.02) (0.11) - - -
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Distributions (0.42) (1.34) (0.37) (0.43) - (0.15) (0.38) (0.48) (0.44) (0.37) (0.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $14.87 $12.64 $11.08 $11.43 $10.35 $20.06 $18.12 $13.58 $13.91 $13.12 $11.44
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 21.51%# 28.75% 0.22% 14.72% 6.70%# 11.59%# 36.54% 1.04% 9.48% 18.23% 16.80%#
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA
Net Assets, End of
Period
(thousands) $260,023 $186,644 $112,137 $136,863 $134,418 $130,752 $97,111 $48,638 $37,830 $34,908 $22,279
Ratio of Expenses
to Average Net
Assets** 0.48%* 0.49% 0.53% 0.58% 0.48%* 0.24%*(a) 0.24%(a) 0.24%(a) 0.24%(a) 0.11%(a) 0.00%*(a)
Ratio of Net
Investment
Income to
Average
Net Assets (0.11)%* 0.83% 0.72% 0.70% 0.96%* 2.22%*(a) 2.29%(a) 2.75%(a) 2.48%(a) 2.86%(a) 3.42%*(a)
Portfolio Turnover
Rate N/A*** N/A*** N/A*** 1.81%*(b) 3.41%* N/A*** N/A*** N/A*** 27.67%*(b) 3.56% 0.97%*
Average Commission
Rate N/A*** N/A*** N/A*** N/A N/A N/A*** N/A*** N/A*** N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Represents the combined ratio for the respective portfolio and its
respective pro-rata share of its Master Fund Series for the year ended
November 30, 1993 and subsequent periods.
*** Refer to the respective Master Fund Series.
# Non-Annualized
(a) Had certain waivers and reimbursements not been in effect, the ratios
of expenses to average net assets for the periods ended May 31, 1996,
November 30, 1995, 1994, 1993, 1992 and 1991 would have been 0.50%, 0.46%,
0.66%, 0.79%, 0.53% and 0.52%, respectively, and the ratios of net
investment income to average net assets for the periods ended May 31, 1996,
November 30, 1995, 1994, 1993, 1992, and 1991 would have been 1.96%, 2.23%,
2.64%, 2.28%, 2.44% and 2.90%, respectively.
(b) Portfolio turnover calculated for the periods December 1, 1992 to
February 2, 1993 and December 1, 1992 to February 7, 1993, respectively
(through date of Exchange transaction, see respective Master Fund Series
for rate subsequent to Exchange transaction).
11
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE U.S. SMALL CAP VALUE PORTFOLIO THE U.S. LARGE CAP VALUE PORTFOLIO
---------------------------------- ----------------------------------
Period Year Year March 2 Period Year Year Feb. 19
Ended Ended Ended to Ended Ended Ended to
May 31 Nov. 30 Nov. 30 Nov. 30 May 31 Nov. 30 Nov. 30 Nov. 30
1996 1995 1994 1993 1996 1995 1994 1993
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $14.03 $11.13 $11.04 $10.00 $13.29 $9.91 $10.60 $10.00
------ ------ ------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income - 0.10 0.14 0.11 0.08 0.29 0.32 0.18
Net Gains (Losses) on
Securities (Realized
and Unrealized) 2.29 3.06 0.10 1.03 1.54 3.55 (0.68) 0.59
---- ---- ---- ---- ---- ---- ---- ----
Total From Investment
Operations 2.29 3.16 0.24 1.14 1.62 3.84 (0.36) 0.77
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.02) (0.10) (0.15) (0.10) (0.08) (0.29) (0.33) (0.17)
Net Realized Gains (0.05) (0.16) - - - (0.17) - -
---- ---- ---- ---- ---- ---- ---- ----
Total Distributions (0.07) (0.26) (0.15) (0.10) (0.08) (0.46) (0.33) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $16.25 $14.03 $11.13 $11.04 $14.83 $13.29 $9.91 $10.60
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.33%# 28.41% 2.19% 11.39%# 12.29%# 39.13% (3.27)% 7.59%#
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $1,021,021 $609,950 $344,148 $95,682 $398,218 $280,915 $197,566 $90,288
Ratio of Expenses to
Average Net Assets** 0.61%* 0.64% 0.66% 0.70%* 0.37%* 0.42% 0.44% 0.47%*
Ratio of Net Investment
Income to Average
Net Assets (0.08)%* 0.85% 1.69% 1.97%* 1.07%* 2.49% 3.50% 3.38%*
Portfolio Turnover Rate N/A*** N/A*** N/A*** N/A*** N/A*** N/A*** N/A*** N/A***
Average Commission Rate N/A*** N/A*** N/A*** N/A*** N/A*** N/A*** N/A*** N/A***
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Represents the respective combined ratio for The U.S. Small Cap Value
Portfolio and The U.S. Large Cap Value Portfolio and their pro-rata shares
of their respective Master Fund Series.
*** Refer to the respective Master Fund Series.
# Non-annualized
12
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE ENHANCED U.S. LARGE
THE DFA REAL ESTATE SECURITIES PORTFOLIO COMPANY PORTFOLIO
-------------------------------------------- ----------------------------
Year Year
Period Ended Ended Jan 5 to Period from July 3, 1996
Ended May Nov. 30 Nov. 30 Nov. 30 (commencement of operations)
31 1996 1995 1994 1993 to October 31, 1996
- -----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 10.00 $ 9.28 $ 10.92 $ 10.00 $ 10.00
----------- --------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.35 0.61 0.37 0.20 (0.01)
Net Gains (Losses) on Securities
(Realized and Unrealized) 0.71 0.68 (1.65) 0.91 1.01
----------- --------- --------- --------- ----------
Total From Investment Operations 1.06 1.29 (1.28) 1.11 1.00
- -----------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.14) (0.46) (0.28) (0.19) --
Net Realized Gains -- -- -- -- --
Tax Return of Capital -- (0.11) (0.08) -- --
----------- --------- --------- --------- ----------
Total Distributions (0.14) (0.57) (0.36) (0.19) --
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.92 $ 10.00 $ 9.28 $ 10.92 $ 11.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total Return 10.70%# 14.00% (11.76)% 11.08%# 10.00%#
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(thousands) $ 47,367 $ 43,435 $ 30,456 $ 22,106 $ 26,251
Ratio of Expenses to Average Net
Assets 0.73%* 0.82% 0.90% 0.88%* 0.68%*(2)
Ratio of Net Investment Income to
Average Net Assets 6.62%* 6.76% 3.90% 2.63%* (0.39%)*(2)
Portfolio Turnover Rate 24.08%* 0.66% 28.87% 0.55%* N/A
Average Commission Rate(1) $ 0.0456 N/A N/A N/A --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
(2) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
N/A Refer to the respective Master Fund Series.
13
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE PACIFIC RIM SMALL COMPANY PORTFOLIO
-----------------------------------------------
Period Year Ended Year Ended Jan. 5 to
Ended May Nov. 30 Nov. 30 Nov. 30
31 1996 1995 1994 1993
(unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 14.38 $ 15.98 $ 16.45 $ 10.00
----------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0 .12 0.34 0.23 0.11
Net Gains (Losses) on Securities (Realized and Unrealized) 2.18 (1.33) 0.47 6.46
----------- ---------- ---------- ----------
Total From Investment Operations 2.30 (0.99) 0.70 6.57
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.02) (0.34) (0.23) (0.09)
Net Realized Gains (0.40) (0.27) (0.94) (0 .03)
Tax Return of Capital -- -- -- --
----------- ---------- ---------- ----------
Total Distributions (0.42) (0.61) (1.17) (0.12)
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.26 $ 14.38 $ 15.98 $ 16.45
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total Return 16.41%# (6.27)% 4.26% 65.71%#
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 209,217 $ 193,137 $ 212,953 $ 164,623
Ratio of Expenses to Average Net Assets 0.81%* 0.83% 0.95% 1.16%*
Ratio of Net Investment Income to Average Net Assets 1.52%* 2.22% 1.47% 1.27%*
Portfolio Turnover Rate 9.40%* 5.95% 26.05% 2.77%*
Average Commission Rate(1) $ 0.0114 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
14
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE JAPANESE SMALL COMPANY PORTFOLIO
---------------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Period Ended Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
May 31 1996 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 22.78 $ 25.06 $ 19.96 $ 18.92 $ 25.05 $ 26.27 $ 38.33
--------------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.05 0.06 0.05 0.04 0.04 (0.01) (0.03)
Net Gains (Losses) on Securities (Realized
and Unrealized) 3.78 (1.65) 5.76 1.75 (5.69) 0.51 (10.74)
--------------- --------- --------- --------- --------- --------- ---------
Total From Investment Operations 3.83 (1.59) 5.81 1.79 (5.65) 0.50 (10.77)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.01) (0.06) (0.04) (0.05) -- -- --
Net Realized Gains (0.36) (0.63) (0.67) (0.70) (0.48) (1.72) (1.29)
--------------- --------- --------- --------- --------- --------- ---------
Total Distributions (0.37) (0.69) (0.71) (0.75) (0.48) (1.72) (1.29)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 26.24 $ 22.78 $ 25.06 $ 19.96 $ 18.92 $ 25.05 $ 26.27
--------------- --------- --------- --------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Return 16.94%# (6.54)% 29.59% 9.52% (23.01)% 1.68% (29.12)%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 409,125 $ 371,113 $ 330,674 $ 209,244 $ 139,892 $ 159,475 $ 149,100
Ratio of Expenses to Average Net Assets 0.71%* 0.74% 0.76% 0.82% 0.78% 0.78% 0.83%
Ratio of Net Investment Income to Average
Net Assets 0.35%* 0.25% 0.10% 0.06% 0.10% (0.11)% (0.22)%
Portfolio Turnover Rate 6.13%* 7.79% 10.51% 9.36% 5.00% 2.71% 10.26%
Average Commission Rate(1) $ 0.0443 N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Year
Ended Ended Year Ended Jan. 31 to
Nov. 30 Nov. 30 Nov. 30 Nov. 30
1989 1988 1987 1986
--------- --------- ----------- -----------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 31.03 $ 24.87 $ 14.39 $ 10.35
--------- --------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.09) (0.05) (0.01) 0.01
Net Gains (Losses) on Securities (Realized
and Unrealized) 9.09 10.42 10.53 4.03
--------- --------- ----------- -----------
Total From Investment Operations 9.00 10.37 10.52 4.04
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income -- -- -- --
Net Realized Gains (1.70) (4.21) (0.04) --
--------- --------- ----------- -----------
Total Distributions (1.70) (4.21) (0.04) --
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 38.33 $ 31.03 $ 24.87 $ 14.39
--------- --------- ----------- -----------
Total Return 30.63% 47.62% 73.09% 38.37%#
- --------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 168,820 $ 107,863 $ 60,450 $ 45,683
Ratio of Expenses to Average Net Assets 0.76% 0.76% 0.78% 0.79%*
Ratio of Net Investment Income to Average
Net Assets (0.34)% (0.23)% (0.08)% 0.07%*
Portfolio Turnover Rate 5.76% 9.14% 0.07% 0.00%*
Average Commission Rate(1) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
15
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE UNITED KINGDOM SMALL COMPANY PORTFOLIO
---------------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Period Ended Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
May 31 1996 1995 1994 1993 1992 1991 1990
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 24.09 $ 23.20 $ 21.22 $ 16.38 $ 21.37 $ 20.41 $ 22.55
--------------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29 0.84 0.48 0.45 0.64 0.69 0.92
Net Gains (Losses) on Securities (Realized
and Unrealized) 3.74 1.12 2.03 5.34 (4.98) 1.71 (1.34)
--------------- --------- --------- --------- --------- --------- ---------
Total From Investment Operations 4.03 1.96 2.51 5.79 (4.34) 2.40 (0.42)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.06) (0.76) (0.53) (0.95) (0.65) (0.90) (0.75)
Net Realized Gains (1.59) (0.31) -- -- -- (0.54) (0.97)
--------------- --------- --------- --------- --------- --------- ---------
Total Distributions (1.65) (1 .07) (0.53) (0.95) (0.65) (1.44) (1.72)
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 26.47 $ 24.09 $ 23.20 $ 21.22 $ 16.38 $ 21.37 $ 20.41
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Return 17.85%# 8.39% 11.85% 36.42% (20.93)% 12.55% (2.22)%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 184,414 $ 167,730 $ 214,113 $ 181,789 $ 121,086 $ 146,873 $ 127,137
Ratio of Expenses to Average Net Assets 0.72%* 0.72% 0.74% 0.78% 0.76% 0.84% 0.83%
Ratio of Net Investment Income to Average
Net Assets 2.41%* 2.51% 1.95% 2.22% 3.19% 3.44% 4.34%
Portfolio Turnover Rate 4.98%* 7.82% 10.75% 8.21% 4.41% 4.50% 10.86%
Average Commission Rate(1) $ 0.0107 N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Year
Ended Ended Year Ended Jan. 31 to
Nov. 30 Nov. 30 Nov. 30 Nov. 30
1989 1988 1987 1986
--------- --------- ----------- -----------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 28.29 $ 23.41 $ 16.29 $ 14.03
--------- --------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.52 0.61 0.17 0.46
Net Gains (Losses) on Securities (Realized
and Unrealized) (4.75) 5.18 7.35 1.80
--------- --------- ----------- -----------
Total From Investment Operations (4.23) 5.79 7.52 2.26
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.54) (0.28) (0.36) --
Net Realized Gains (0.97) (0.63) (0.04) --
--------- --------- ----------- -----------
Total Distributions (1.51) (0.91) (0.40) --
Net Asset Value, End of Period $ 22.55 $ 28.29 $ 23.41 $ 16.29
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total Return (15.40)% 23.66% 47.44% 13.19%#
- --------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 119,385 $ 121,337 $ 82,197 $ 29,275
Ratio of Expenses to Average Net Assets 0.70% 0.71% 0.85% 0.76%*
Ratio of Net Investment Income to Average
Net Assets 2.24% 2.58% 1.92% 3.99%*
Portfolio Turnover Rate 11.38% 12.55% 9.50% 11.81%*
Average Commission Rate(1) N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
16
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE CONTINENTAL SMALL COMPANY PORTFOLIO
------------------------------------------------------------------
Year Year Year Year Year
Period Ended Ended Ended Ended Ended
Ended May Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
31 1996 1995 1994 1993 1992 1991
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.13 $ 14.63 $ 12.62 $ 11.39 $ 14.18 $ 16.24
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.29 0.18 0.23 0.28 0.27
Net Gains (Losses) on Securities (Realized and Unrealized) 1.58 (0.48) 2.10 1.46 (2.11) (1.66)
----------- --------- --------- --------- --------- ---------
Total From Investment Operations 1.68 (0.19) 2.28 1.69 (1.83) (1.39)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.02) (0.29) (0.19) (0.44) (0.26) (0.29)
Net Realized Gains (0.73) (0.02) (0.07) (0.02) (0.70) (0.38)
Tax Return of Capital -- -- (0.01) -- -- --
----------- --------- --------- --------- --------- ---------
Total Distributions (0.75) (0.31) (0.27) (0.46) (0.96) (0.67)
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.06 $ 14.13 $ 14.63 $ 12.62 $ 11.39 $ 14.18
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return 12.47%# (1.33)% 18.19% 15.27% (13.85)% (9.11)%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 351,204 $ 314,116 $ 340,992 $ 266,175 $ 196,845 $ 214,054
Ratio of Expenses to Average Net Assets 0.72%* 0.74% 0.77% 0.83% 0.90% 0.86%
Ratio of Net Investment Income to Average Net Assets 1.43%* 1.69% 1.21% 1.61% 2.11% 1.68%
Portfolio Turnover Rate 5.19%* 9.79% 10.22% 8.99% 6.35% 7.69%
Average Commission Rate(1) $ 0.1612 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Year
Ended Ended April 15
Nov. 30 Nov. 30 to Nov.
1990 1989 30 1988
--------- --------- ---------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.15 $ 12.02 $ 10.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.12 0.17
Net Gains (Losses) on Securities (Realized and Unrealized) 0.31 4.10 1.85
--------- --------- ---------
Total From Investment Operations 0.56 4.22 2.02
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.20) (0.09) --
Net Realized Gains (0.27) -- --
Tax Return of Capital -- -- --
--------- --------- ---------
Total Distributions (0.47) (0.09) --
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.24 $ 16.15 $ 12.02
- -------------------------------------------------------------------------------------------
Total Return 3.50% 35.62% 20.01%#
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (thousands) $ 245,465 $ 199,065 $ 78,689
Ratio of Expenses to Average Net Assets 0.89% 0.82% 1.05%*
Ratio of Net Investment Income to Average Net Assets 1.63% 1.41% 3.27%*
Portfolio Turnover Rate 6.24% 5.70% 0.26%*
Average Commission Rate(1) N/A N/A N/A
- -------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
17
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE RWB/DFA INTERNATIONAL
THE LARGE CAP INTERNATIONAL PORTFOLIO HIGH BOOK TO MARKET PORTFOLIO
--------------------------------------- -----------------------------
Period Year Year Year Year July 15 Period Year Year June 10
Ended Ended Ended Ended Ended 1991 to Ended Ended Ended to
May 31 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 May 31 Nov. 30 Nov. 30 Nov. 30
1996 1995 1994 1993 1992 1991 1996 1995 1994 1993
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.60 $11.91 $11.26 $9.63 $10.64 $10.00 $12.02 $11.44 $9.92 $10.00
------ ------ ------ ----- ------ ------ ------ ------ ----- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.11 0.15 0.09 0.15 0 .11 0.06 0.02 0.19 0.14 0.06
Net Gains (Losses) on
Securities (Realized
and Unrealized) 0.84 0.95 1.11 1.72 (1.04) 0.58 1.31 0.60 1.52 (0.11)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total From Investment
Operations 0.95 1.10 1.20 1.87 (0.93) 0.64 1.33 0.79 1.66 (0.05)
- -------------------------------------------------------------------------------------------------------------------
Less Distributions
Net Investment Income (0.02) (0.18) (0.09) (0.24) (0.07) - (0.01) (0.19) (0.14) (0.03)
Net Realized Gains - (0.23) (0.46) - (0.01) - - (0.02) - -
------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Total Distributions (0.02) (0.41) (0.55) (0.24) (0.08) - (0.01) (0.21) (0.14) (0.03)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $13.53 $12.60 $11.91 $11.26 $9.63 $10.64 $13.34 $12.02 $11.44 $9.92
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total Return 7.52%# 9.37% 10.74% 19.55% (9.00)% 2.88%# 11.11%# 6.95% 16.71% (0.50)%#
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $70,550 $67,940 $55,635 $78,472 $26,041 $4,360 $232,037 $172,017 $112,952 $63,235
Ratio of Expenses to
Average Net Assets** 0.58%* 0.57% 0.66% 0.55%(a) 0.50%(a) 0.50%*(a) 0.58%* 0.68% 0.69%(b) 0.65%*(b)
Ratio of Net Investment
Income to Average
Net Assets 1.65%* 1.84% 1.18% 1.94%(a) 1.75%(a) 1.96%*(a) 0.29%* 1.85% 1.39%(b) 1.40%*(b)
Portfolio Turnover Rate 28.04%* 24.44% 33.15% 0.28% 0.20% 2.38%* N/A*** N/A*** 0.15%*(c) 0.41%*
Average Commission
Rate(1) $0.0167 N/A N/A N/A N/A N/A N/A*** N/A*** N/A N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Represents the combined ratio for The RWB/DFA International High Book to
Market Portfolio and its pro-rata share of its Master Fund Series for the
year ended November 30, 1994 and subsequent periods.
*** Refer to the respective Master Fund Series.
# Non-annualized
(a) Had certain fees and expenses not been waived or reimbursed, the ratios
of expenses to average net assets for the periods ended November 30,
1993, 1992 and 1991 would have been 0.66%, 1.35% and 2.31%,
respectively, and the ratios of net investment income to average net
assets for the periods ended November 30, 1993, 1992 and 1991 would
have been 1.83%, 0.90% and 0.15%, respectively.
(b) Had certain waivers not been in effect, the ratios of expenses to
average net assets for the periods ended November 30, 1994 and 1993
would have been 0.73% and 0.82%, respectively, and the ratios of net
investment income to average net assets for the periods ended November
30, 1994 and 1993 would have been 1.38% and 1.23%, respectively.
(c) Portfolio turnover calculated for the period December 1, 1993 to
February 15, 1994 (through date of Exchange transaction, see respective
Master Fund Series for rate subsequent to Exchange transaction).
(1) Computed by dividing the total amount of brokerage commissions paid
by the total shares of investment securities purchased and sold during
the period for which commissions were charged, as required by the SEC
for fiscal years beginning after September 1, 1995.
18
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE DFA
INTERNATIONAL SMALL CAP
THE EMERGING MARKETS PORTFOLIO VALUE PORTFOLIO
------------------------------- -----------------------
Period Year April 25 Period Dec 30
Ended Ended to Ended 1994 to
May 31 Nov. 30 Nov. 30 May 31 Nov. 30
1996 1995 1994 1996 1995
(unaudited) (unaudited)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.35 $11.30 $10.00 $9.68 $10.00
------ ------ ------ ----- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.11 0.06 (0.02) 0.05 0.05
Net Gains (Losses) on
Securities (Realized
and Unrealized) 1.50 (0.96) 1.32 1.39 (0.32)
------ ------ ------ ----- ------
Total From Investment
Operations 1.61 (0.90) 1.30 1.44 (0.27)
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income - (0.05) - - (0.04)
Net Realized Gains - - - - (0.01)
------ ------ ------ ----- ------
Total Distributions - (0.05) - - (0.05)
- --------------------------------------------------------------------------------------
Net Asset Value, End of
Period $11.96 $10.35 $11.30 $11.12 $9.68
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Return 15.60%# (7.96)% 13.00%# 14.93%# (2.73)%#
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $120,995 $49,337 $15,731 $318,151 $147,125
Ratio of Expenses to
Average Net Assets 1.20%*(a) 1.58%(a) 2.43%*(a) 1.03%* 1.23%*(b)
Ratio of Net Investment
Income to Average
Net Assets 2.66%* 0.98% (0.44)%* 1.21%* 1.43%*(b)
Portfolio Turnover Rate N/A*** N/A*** N/A*** 14.94%* 1.62%*
Average Commission Rate(1) N/A*** N/A*** N/A*** $0.0071 N/A
- --------------------------------------------------------------------------------------
</TABLE>
* Annualized
*** Refer to the respective Master Fund Series.
# Non-annualized
(a) Reflects the Portfolio's proportionate share of expenses from its
respective Master Fund Series.
(b) Because of commencement of operations and related preliminary
transaction costs, these ratios are not necessarily indicative of future
ratios.
(1) Computed by dividing the total amount of brokerage commissions paid by
the total shares of investment securities purchased and sold during the
period for which commissions were charged, as required by the SEC for
fiscal years beginning after September 1, 1995.
19
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE DFA ONE-YEAR FIXED INCOME PORTFOLIO
----------------------------------------------------------------------------------------------------------
PERIOD
ENDED YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
MAY 31 ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
1996 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.21 $10.05 $10.28 $10.35 $10.33 $10.19 $10.16 $10.12 $10.12 $10.27 $10.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.27 0.60 0.46 0.35 0.43 0.68 0.83 0.82 0.78 0.69 0.76
Net Gains (Losses) on
Securities (Realized
and Unrealized) (0.03) 0.17 (0.21) 0.11 0.06 0.16 0.04 0.03 (0.04) (0.08) 0.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From
Investment Operations 0.24 0.77 0.25 0.46 0.49 0.84 0.87 0.85 0.74 0.61 0.91
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.27) (0.60) (0.46) (0.38) (0.44) (0.70) (0.84) (0.81) (0.74) (0.68) (0.78)
Net Realized Gains - (0.01) (0.02) (0.15) (0.03) - - - - (0.08) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (0.27) (0.61) (0.48) (0.53) (0.47) (0.70) (0.84) (0.81) (0.74) (0.76) (0.82)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $10.18 $10.21 $10.05 $10.28 $10.35 $10.33 $10.19 $10.16 $10.12 $ 10.12 $ 10.27
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 2.44%# 7.80% 2.48% 4.62% 5.64% 8.61% 8.88% 9.53% 7.61% 6.14% 9.45%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $824,604 $704,950 $592,226 $608,400 $561,879 $469,276 $412,907 $360,146 $341,551 $342,436 $332,018
Ratio of Expenses to
Average Net Assets** 0.21%* 0.20% 0.21% 0.21% 0.21% 0.21% 0.21% 0.22% 0.22% 0.22% 0.23%
Ratio of Net Investment
Income to Average
Net Assets 5.27%* 5.86% 4.47% 3.38% 4.81% 6.75% 8.27% 8.77% 7.70% 6.82% 7.42%
Portfolio Turnover Rate N/A*** N/A*** N/A*** 61.95%(a) 125.56% 82.26% 96.30% 0.00% 80.74% 162.18% 138.50%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Adjusted to reflect a 900% stock dividend as of January 2, 1996)
* Annualized
** Represents the combined ratio for the portfolio and its pro-rata share of
its Master Fund Series for the period ended November 30, 1993 and subsequent
periods.
*** Refer to the respective Master Fund Series.
# Non-annualized
(a) Portfolio turnover calculated for period December 1, 1992 to February 7,
1993 (through date of Exchange transaction, see respective Master Fund
Series for rate subsequent to Exchange transaction).
20
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE DFA FIVE-YEAR GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------------------------------
PERIOD
ENDED YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR MAY 31
MAY 31 ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
1996 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.05 $9.75 $10.55 $10.88 $11.25 $10.64 $10.46 $10.42 $10.33 $10.00
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.29 0.59 0.48 0.47 0.57 0.81 0.76 0.85 0.62 0.38
Net Gains (Losses) on
Securities (Realized
and Unrealized) (0.07) 0.30 (0.80) 0.49 0.31 0.54 0.20 0.05 0.09 (0.05)
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations 0.22 0.89 (0.32) 0.96 0.88 1.35 0.96 0.90 0.71 0.33
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.06) (0.59) (0.48) (0.73) (0.76) (0.74) (0.78) (0.86) (0.58) -
Net Realized Gains - - - (0.56) (0.49) - - - (0.04) -
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (0.06) (0.59) (0.48) (1.29) (1.25) (0.74) (0.78) (0.86) (0.62) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $10.21 $10.05 $9.75 $10.55 $10.88 $11.25 $10.64 $10.46 $10.42 $10.33
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 2.16%# 9.35% (3.13)% 9.46% 8.59% 13.44% 9.72% 9.33% 7.13% 3.26%#
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $208,574 $300,921 $235,554 $164,504 $83,543 $56,971 $52,260 $53,039 $4,863 $4,258
Ratio of Expenses to
Average Net Assets 0.28%* 0.28% 0.31% 0.31% 0.31% 0.30% 0.30% 0.30% 0.28% 0.27%*
Ratio of Net Investment
Income to Average Net Assets 5.35%* 6.14% 5.08% 4.75% 5.82% 7.16% 7.91% 8.49% 7.97% 7.50%*
Portfolio Turnover Rate 474.38%* 398.09% 52.39% 152.10% 218.60% 223.18% 165.50% 312.59% 253.31% 100.85%*
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Adjusted to reflect a 900% stock dividend as of January 2, 1996)
* Annualized
# Non-annualized
21
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE DFA
TWO-YEAR
GLOBAL FIXED
INCOME
THE DFA INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO(A) PORTFOLIO
--------------------------------------------------------------------- -----------
PERIOD FEB. 9
ENDED YEAR YEAR YEAR YEAR YEAR YEAR 1996 TO
MAY 31 ENDED ENDED ENDED ENDED ENDED ENDED MAY 31
1996 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 NOV. 30 1996
(UNAUDITED) 1995 1994 1993 1992 1991 1990 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $11.24 $10.22 $11.59 $11.20 $11.02 $10.27 $10.00 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.33 0.70 0.69 0.55 0.76 0.84 0.09 0.01
Net Gains (Losses) on
Securities (Realized
and Unrealized)z (0.58) 1.11 (1.22) 0.66 0.26 0.63 0.18 0.14
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment
Operations (0.25) 1.81 (0.53) 1.21 1.02 1.47 0.27 0.15
- ---------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment
Income (0.18) (0.70) (0.68) (0.73) (0.78) (0.72) - (0.02)
Net Realized Gains (0.04) (0.09) (0.16) (0.09) (0.06) - - -
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (0.22) (0.79) (0.84) (0.82) (0.84) (0.72) - (0.02)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $10.77 $11.24 $10.22 $11.59 $11.20 $11.02 $10.27 $ 10.13
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total Return (2.23)%# 18.04% (4.72)% 12.84% 9.70% 14.94% 2.63%# 1.46%#
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $81,607 $78,087 $60,827 $53,051 $40,160 $29,393 $25,567 $262,909
Ratio of Expenses to
Average Net Assets** 0.25%* 0.27% 0.29% 0.32% 0.29% 0.28% 0.23%* 0.33%*(b)
Ratio of Net
Investment
Income to Average
Net Assets 6.11%* 6.44% 6.45% 6.41% 7.05% 7.86% 8.73%* 0.45%*(b)
Portfolio Turnover
Rate 15.62%* 40.79% 27.15% 16.91% 17.91% 19.72% 0.00%* N/A***
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Represents the combined ratio for The DFA Two-Year Global Fixed Income
Portfolio and its pro-rata share of its Master Fund Series.
*** Refer to the respective Master Fund Series.
# Non-annualized
(a) Adjusted to reflect a 900% stock dividend as of January 2, 1996
(b) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
22
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
THE DFA GLOBAL FIXED INCOME PORTFOLIO(a)
---------------------------------------------------------------------------
Period Year Year Year Year Year Nov. 6
Ended Ended Ended Ended Ended Ended to
May 31 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30 Nov. 30
1996 1995 1994 1993 1992 1991 1990
(unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.51 $9.81 $10.56 $10.36 $10.47 $10.02 $10.00
------ ----- ----- ----- ----- ----- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.22 0.39 0.35 0.40 0.54 0.66 0.04
Net Gains (Losses) on
Securities (Realized
and Unrealized) 0.05 1.08 (0.65) 0.73 0.26 0.26 (0.02)
------ ----- ----- ----- ----- ----- ------
Total From Investment
Operations 0.27 1.47 (0.30) 1.13 0.80 0.92 0.02
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Net Investment Income (0.35) (0.77) (0.44) (0.45) (0.64) (0.47) -
Net Realized Gains - - (0.01) (0.48) (0.27) - -
------ ----- ----- ----- ----- ----- ------
Total Distributions (0.35) (0.77) (0.45) (0.93) (0.91) (0.47) -
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $10.43 $10.51 $9.81 $10.56 $10.36 $10.47 $10.02
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Total Return 2.65%# 15.23% (2.91)% 11.42% 8.00% 11.00% 0.22%#
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (thousands) $127,527 $208,166 $135,529 $101,528 $54,607 $31,647 $8,474
Ratio of Expenses to
Average Net Assets 0.46%* 0.46% 0.49% 0.52% 0.58% 0.67% 0.51%*
Ratio of Net Investment
Income to Average
Net Assets 4.93%* 5.80% 5.75% 5.09% 5.52% 6.74% 6.92%*
Portfolio Turnover Rate 143.73%* 130.41% 113.55% 139.57% 210.39% 194.25% 0.00%*
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
# Non-annualized
(a) Adjusted to reflect a 900% stock dividend as of January 2, 1996
23
<PAGE>
THE FEEDER PORTFOLIOS
Each of the sixteen Feeder Portfolios, unlike many other investment
companies which directly acquire and manage their own portfolio of
securities, seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Series of the Trust, an open-end,
management investment company, registered under the Investment Company Act of
1940, that issues Series having the same investment objective as each of
those Portfolios. The investment objective of a Feeder Portfolio may not be
changed without the approval of its shareholders, and the investment
objective of a Series of the Trust may not be changed without approval of the
shareholders of that Series. Shareholders of a Feeder Portfolio will receive
written notice thirty days prior to the effective date of any change in the
investment objective of its corresponding Trust Series.
This prospectus describes the investment objective, policies and
restrictions of each Feeder Portfolio and its corresponding Series. (See
"PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS - U.S.
6-10 Small Company Portfolio, Japanese Small Company Portfolio, United
Kingdom Small Company Portfolio, Continental Small Company Portfolio and
Pacific Rim Small Company Portfolio"; "ENHANCED U.S. LARGE COMPANY PORTFOLIO
- - Investment Objective and Policies"; "U.S. LARGE COMPANY PORTFOLIO -
Investment Objective and Policies"; "THE VALUE PORTFOLIOS - Portfolio
Characteristics and Policies"; "INVESTMENT OBJECTIVES AND POLICIES - FIXED
INCOME PORTFOLIOS - DFA One-Year Fixed Income Portfolio; DFA Two-Year
Corporate Fixed Income Portfolio; DFA Two-Year Global Fixed Income Portfolio;
and DFA Two-Year Government Portfolio"; "RWB/DFA INTERNATIONAL HIGH BOOK TO
MARKET PORTFOLIO - Investment Objective and Policies"; and "EMERGING MARKETS
PORTFOLIO AND EMERGING MARKETS SMALL CAP PORTFOLIO - Investment Objectives
and Policies"). In addition, an investor should read "MANAGEMENT OF THE
FUND" for a description of the management and other expenses associated with
the Feeder Portfolios' investment in the Trust. Other institutional
investors, including other mutual funds, may invest in each Series, and the
expenses of such other funds and, correspondingly, their returns may differ
from those of the Feeder Portfolios. Please contact the Trust at 1299 Ocean
Avenue, 11th Floor, Santa Monica, CA 90401, (310) 395-8005 for information
about the availability of investing in a Series of the Trust other than
through a Feeder Portfolio.
The shares of the Trust Series will be offered to institutional investors
for the purpose of increasing the funds available for investment, to reduce
expenses as a percentage of total assets and to achieve other economies that
might be available at higher asset levels. While investment in a Series by
other institutional investors offers potential benefits to the Series and,
through their investment in the Series, the Feeder Portfolios also, economies
and expense reductions might not be achieved, and additional investment
opportunities, such as increased diversification, might not be available if
other institutions do not invest in the Series. Also, if an institutional
investor were to redeem its interest in a Series, the remaining investors in
that Series could experience higher pro rata operating expenses, thereby
producing lower returns, and the Series' security holdings may become less
diverse, resulting in increased risk. Institutional investors that have a
greater pro rata ownership interest in a Series than the corresponding Feeder
Portfolio could have effective voting control over the operation of the
Series.
Further, if a Series changes its investment objective in a manner which
is inconsistent with the investment objective of a corresponding Feeder
Portfolio and the shareholders of the Portfolio fail to approve a similar
change in the investment objective of the Portfolio, the Portfolio would be
forced to withdraw its investment in the Series and either seek to invest its
assets in another registered investment company with the same investment
objective as the Portfolio, which might not be possible, or retain an
investment advisor to manage the Portfolio's assets in accordance with its
own investment objective, possibly at increased cost. A withdrawal by a
Feeder Portfolio of its investment in the corresponding Series could result
in a distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Portfolio. Should such a distribution occur, the
Portfolio could incur brokerage fees or other transaction costs in converting
such securities to cash in order to pay redemptions. In addition, a
distribution in kind to the Portfolio could result in a less diversified
portfolio of investments and could affect adversely the liquidity of the
Portfolio. Moreover, a distribution in kind by the Series corresponding to
the U.S. 6-10 Small Company, U.S. Large Company, Enhanced U.S. Large Company,
DFA One-Year Fixed Income, DFA Two-Year Corporate Fixed Income, DFA Two-Year
Global Fixed Income, U.S. Small Cap Value, U.S. Large Cap Value, and RWB/DFA
International High Book to Market Portfolios may constitute a taxable
exchange for federal income tax purposes resulting in gain or loss to such
Portfolios. Any net capital gains so realized will be distributed to such a
Portfolio's shareholders as described in "DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES" below.
24
<PAGE>
Finally, the Feeder Portfolios' investment in the shares of a registered
investment company such as the Trust is relatively new and results in certain
operational and other complexities. However, management believes that the
benefits to be gained by shareholders outweigh the additional complexities
and that the risks attendant to such investment are not inherently different
from the risks of direct investment in securities of the type in which the
Trust Series invest.
SMALL COMPANY PORTFOLIOS
INVESTMENT OBJECTIVE AND POLICIES
Each Small Company Portfolio and the U.S. 6-10 Small Company, Japanese
Small Company, Pacific Rim Small Company, United Kingdom Small Company and
Continental Small Company Series of the Trust (the "Small Company Series"),
operates as a diversified investment company whose investment objective is to
achieve long-term capital appreciation. The Small Company Portfolios provide
investors with access to securities portfolios consisting of small U.S.,
Japanese, United Kingdom, European and Pacific Rim companies. Company size
will be determined for purposes of these Portfolios and Series of the Trust
solely on the basis of a company's market capitalization. "Market
capitalization" will be calculated, with respect to domestic securities, by
multiplying the price of a company's stock by the number of its shares of
common stock, or, with respect to foreign securities, similar stocks which
are outstanding.
The U.S. 9-10 Small Company Portfolio and the Small Company Series will
be structured to reflect reasonably the relative market capitalizations of
its portfolio companies. The Advisor believes that over the long term the
investment performance of small companies is superior to large companies, not
only in the U.S. but in other developed countries as well, and that
investment in the Portfolios is an effective way to improve global
diversification. Investors which, for a variety of reasons, may choose not to
make substantial, or any, direct investment in companies whose securities
will be held by the U.S. 9-10 Small Company Portfolio or Small Company
Series, may participate in the investment performance of these companies
through ownership of a Portfolio's stock.
PORTFOLIO CHARACTERISTICS AND POLICIES-
SMALL COMPANY PORTFOLIOS
U.S. 6-10 SMALL COMPANY PORTFOLIO
U.S. 6-10 Small Company Portfolio pursues its investment objective by
investing all of its assets in the U.S. 6-10 Small Company Series of the
Trust (the "6-10 Series"), which has the same investment objective and
policies as the Portfolio. U.S. 6-10 Series will invest in a broad and
diverse group of small U.S. companies having readily marketable securities.
References in this prospectus to a "small U.S. company" means a company whose
securities are traded in the U.S. securities markets and whose market
capitalization is not larger than the largest of those in the smaller
one-half (deciles 6 through 10) of companies listed on the New York Stock
Exchange ("NYSE"). The 6-10 Series will purchase common stocks of companies
whose shares are listed on the NYSE, the American Stock Exchange (the "AMEX")
and traded in the over-the-counter market ("OTC"). The 6-10 Series may
invest in securities of foreign issuers which are traded in the U.S.
securities markets, but such investments may not exceed 5% of the gross
assets of the Series. It is the intention of the 6-10 Series to acquire a
portion of the common stock of each eligible NYSE, AMEX and OTC company on a
market capitalization weighted basis. (See "PORTFOLIO CHARACTERISTICS AND
POLICIES -THE SMALL COMPANY PORTFOLIOS - Portfolio Structure.") In the
future, the 6-10 Series may purchase common stocks of small U.S. companies
which are listed on other U.S. securities exchanges. In addition, the 6-10
Series is authorized to invest in private placements of interest-bearing
debentures that are convertible into common stock ("privately placed
convertible debentures"). Such investments are considered illiquid and the
value thereof together with the value of all other illiquid investments may
not exceed 15% of the value of the Series' total assets at the time of
purchase.
25
<PAGE>
U.S. 9-10 SMALL COMPANY PORTFOLIO
U.S. 9-10 Small Company Portfolio will invest in a broad and diverse
segment of small U.S. companies having readily marketable stocks, and whose
market capitalization is not larger than the largest of those in the quintile
of companies listed on the NYSE having the smallest market capitalizations
(smallest 20%). The Portfolio will purchase stocks of companies whose shares
are listed on the NYSE or AMEX or traded OTC. The Portfolio may invest in
securities of foreign issuers which are traded in the U.S. securities
markets, but such investments may not exceed 5% of the gross assets of the
Portfolio. There is some overlap in the companies in which U.S. 9-10 Small
Company Portfolio and the U.S. 6-10 Series invest. It is the intention of
U.S. 9-10 Small Company Portfolio to acquire a portion of the stock of each
eligible NYSE, AMEX and OTC company on a market capitalization weighted
basis. (See "PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL COMPANY
PORTFOLIOS - Portfolio Structure.") In the future, U.S. 9-10 Small Company
Portfolio may include stocks of small U.S. companies which are listed on
other U.S. securities exchanges. The Portfolio is authorized to invest in
privately placed convertible debentures and the value thereof together with
the value of all other illiquid investments may not exceed 10% of the value
of the Portfolio's total assets at the time of purchase.
JAPANESE SMALL COMPANY PORTFOLIO
Japanese Small Company Portfolio pursues its investment objective by
investing all of its assets in the Japanese Small Company Series of the Trust
(the "Japanese Series"), which has the same investment objective and policies
as the Portfolio. The Japanese Series will invest in a broad and diverse
group of readily marketable stocks of Japanese small companies which are
traded in the Japanese securities markets. Reference in this prospectus to
the term "Japanese small company" means a company located in Japan whose
market capitalization is not larger than the largest of those in the smaller
one-half (deciles 6 through 10) of companies whose securities are listed on
the First Section of the Tokyo Stock Exchange ("TSE").
While the Japanese Series will invest primarily in the stocks of small
companies which are listed on the TSE, it may acquire the stocks of Japanese
small companies which are traded in other Japanese securities markets as
well. It is the intention of the Japanese Series to acquire a portion of the
stock of each of these companies on a market capitalization weighted basis.
The Japanese Series also may invest up to 5% of its assets in convertible
debentures issued by Japanese small companies. (See "PORTFOLIO
CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS - Portfolio
Structure.")
UNITED KINGDOM SMALL COMPANY PORTFOLIO
United Kingdom Small Company Portfolio pursues its investment objective
by investing all of its assets in the United Kingdom Small Company Series of
the Trust (the "United Kingdom Series"), which has the same investment
objective and policies as the Portfolio. The United Kingdom Series will
invest in a broad and diverse group of readily marketable stocks of United
Kingdom small companies which are traded principally on the International
Stock Exchange of the United Kingdom and the Republic of Ireland ("ISE").
Reference in this prospectus to a "United Kingdom small company" means a
company organized in the United Kingdom, with shares listed on the ISE whose
market capitalization is not larger than the largest of those in the smaller
one-half (deciles 6 through 10) of companies included in the Financial
Times-Actuaries All Share Index ("FTA").
The FTA is an index of stocks traded on the ISE, which is similar to the
S&P 500 Index, and is used by investment professionals in the United Kingdom
for the same purposes as investment professionals in the U.S. use the S&P 500
Index. While the FTA will be used by the United Kingdom Series to determine
the maximum market capitalization of any company whose stock the Series will
purchase, acquisitions by the United Kingdom Series will not be limited to
stocks which are included in the FTA. The United Kingdom Series will not,
however, purchase shares of any investment trust or of any company whose
market capitalization is less than $5,000,000.
It is the intention of United Kingdom Series to acquire a portion of the
stock of each eligible company on a market capitalization basis. The United
Kingdom Series also may invest up to 5% of its assets in convertible
debentures issued by United Kingdom small companies. (See "PORTFOLIO
CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS - Portfolio
Structure.")
26
<PAGE>
CONTINENTAL SMALL COMPANY PORTFOLIO
Continental Small Company Portfolio pursues its investment objective by
investing all of its assets in the Continental Small Company Series of the
Trust (the "Continental Series"), which has the same investment objective and
policies as the Portfolio. The Continental Series is authorized to invest in
readily marketable stocks of a broad and diverse group of small companies
organized under the laws of certain European countries; specifically, France,
Germany, Italy, Switzerland, the Netherlands, Sweden, Belgium, Norway, Spain,
Austria, Finland and Denmark, whose shares are traded principally in
securities markets located in those countries. Company size will be
determined by the Advisor in a manner that will compare the market
capitalizations of companies in all countries in which the Continental Series
invests (i.e., on a European basis). The Advisor will use the appropriate
country indices of the Financial Times-Actuaries World Index ("FTW")
converted to a common currency, the United States dollar, and aggregated to
define "small companies." The FTW consists of a series of country indices
which contain generally the largest companies in the major industry sectors
in proportion to their market capitalization whose shares are available for
purchase by non-resident investors. Its constituents represent about 70% of
the total market capitalization of the respective markets. Companies with
publicly traded stock whose market capitalizations are not greater than the
largest of those in the smallest 20% (9th and 10th deciles) of companies
listed in the FTW as combined for the countries in which the Continental
Series invests will be considered to be "small companies" and will be
eligible for purchase by the Continental Series.
While the Advisor will use the aggregated FTW indices to determine the
maximum size of eligible portfolio companies, portfolio acquisitions will not
be limited to stocks listed on the FTW for any country. The Continental
Series does not intend, however, to purchase shares of any company whose
market capitalization is less than the equivalent of $5,000,000. The
Continental Series intends to acquire a portion of the stock of each eligible
company on a market capitalization basis. The Continental Series also may
invest up to 5% of its assets in convertible debentures issued by European
small companies. The Continental Series has acquired the stocks of small
companies located in France, Germany, Italy, Switzerland, the Netherlands,
Belgium, Sweden and Spain. When the Advisor determines that the investments
of the Continental Series in the stocks of small companies in those countries
are sufficiently diverse, the stocks of small companies located in other
European countries may be acquired on a country-by-country basis. In
addition, the Advisor may in its discretion either limit further investments
in a particular country or divest the Continental Series of holdings in a
particular country. (See "PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL
COMPANY PORTFOLIOS - Portfolio Structure.")
PACIFIC RIM SMALL COMPANY PORTFOLIO
Pacific Rim Small Company Portfolio pursues its investment objective by
investing all of its assets in the Pacific Rim Small Company Series of the
Trust (the "Pacific Rim Series"), which has the same investment objective and
policies as the Portfolio. The Pacific Rim Series is authorized to invest in
stocks of a broad and diverse group of small companies located in Australia,
New Zealand and Asian countries whose shares are traded principally on the
securities markets located in those countries. The Pacific Rim Series
presently invests in small companies located in Singapore, Hong Kong,
Australia, Malaysia and Korea. In the future, the Advisor may add small
companies located in New Zealand and other Asian countries as securities
markets in these countries become accessible.
Company size will be determined by the Advisor in a manner that will
compare the market capitalizations of the companies in all countries in which
the Pacific Rim Series invests (i.e., on a Pacific Rim basis). The Advisor
will use the appropriate country indices of the FTW converted to a common
currency and aggregated to define "small companies." Companies with publicly
traded stock whose market capitalizations are not greater than the largest of
those in the smallest 30% of companies (8th, 9th and 10th deciles) listed in
the FTW as combined for the countries in which the Pacific Rim Series invests
will be considered to be "small companies" and will be eligible for purchase
by the Pacific Rim Series. The Advisor may use a standard different from the
FTW to determine "small companies" if it deems such change appropriate.
While the Advisor will use the aggregated FTW indices to determine the
maximum size of eligible portfolio companies, portfolio acquisitions will not
be limited to stocks listed on the FTW for any country. The Pacific Rim
Series does not intend to purchase shares of any company whose market
capitalization is less than $5,000,000. The Pacific Rim Series intends to
acquire a portion of the stock of each eligible company on a market
capitalization
27
<PAGE>
basis. The Pacific Rim Series also may invest up to 5% of its assets in
convertible debentures issued by small companies located in the Pacific Rim.
(See "PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS -
Portfolio Structure.")
INTERNATIONAL SMALL COMPANY PORTFOLIO
The International Small Company Portfolio seeks to achieve its investment
objective by investing virtually all of its assets in all four Underlying
Series in such relative portions as determined by the Advisor from time to
time. A small portion of the assets of International Small Company Portfolio
may be invested in short-term, high-quality, fixed-income obligations pending
investment in shares of the Underlying Series and/or pending payment of
redemptions of its own shares for cash. For a complete description of the
investment objectives and policies, portfolio structure and transactions for
each Underlying Series, see "PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL
COMPANY PORTFOLIOS." The International Small Company Portfolio is designed
for investors who wish to achieve their investment objective of capital
appreciation by participating in the investment performance of a broad range
of equity securities of Japanese, United Kingdom, European and Pacific Rim
small companies.
It is the current policy of International Small Company Portfolio to
invest in the shares of the Underlying Series within the following percentage
ranges:
UNDERLYING SERIES INVESTMENT RANGE
Japanese Small Company 27.5 - 42.5%
United Kingdom Small Company 7.5 - 22.5%
Continental Small Company 27.5 - 42.5%
Pacific Rim Small Company 7.5 - 22.5%
The allocation of the assets of International Small Company Portfolio to
be invested in the Underlying Series will be determined by the Advisor on a
semi-annual basis. In setting the target allocation, the Advisor will first
consider the market capitalizations of all eligible companies in each of the
Underlying Series. The Advisor will calculate the market capitalizations for
each Underlying Series in the manner described under "PORTFOLIO
CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS." In determining the
target allocations, the Advisor, using its best judgment, will seek to
eliminate the effect of cross holdings between companies on a Series by
Series basis and may take into account the existence of substantial private
or government ownership of the shares of a company. The Advisor may also
consider such other factors as it deems appropriate with respect to
determining the target allocations. Target allocations will remain in effect
until the next semi-annual re-calculation. The Advisor expects to change the
relative weights ascribed to each Underlying Series, based on its semi-annual
market capitalization calculations, when it determines that fundamental
changes in the relative values ascribed by market forces to each relevant
geographic area have occurred. To maintain target weights during the period,
adjustments may be made by applying future purchases by International Small
Company Portfolio in proportion necessary to rebalance the investment
portfolio of the Portfolio. Initially, the target allocations for investment
by the Portfolio in the Underlying Series will be: Japanese Small Company
Series - 35%; United Kingdom Small Company Series - 15%; Continental Small
Company Series - 35%; and Pacific Rim Small Company Series - 15%.
PORTFOLIO STRUCTURE
The U.S. 9-10 Small Company Portfolio and each Small Company Series is
structured by generally basing the amount of each security purchased on the
issuer's relative market capitalization with a view to creating in the
Portfolio and each Series a reasonable reflection of the relative market
capitalizations of its portfolio companies. The following discussion applies
to the investment policies of the U.S. 9-10 Small Company Portfolio and the
Small Company Series.
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The decision to include or exclude the shares of an issuer will be made
on the basis of such issuer's relative market capitalization determined by
reference to other companies located in the same country, except that with
respect to Continental and Pacific Rim Series, such determination shall be
made by reference to other companies located in all countries in which the
Series invest. Company size is measured in terms of local currencies in
order to eliminate the effect of variations in currency exchange rates,
except that Continental and Pacific Rim Series each will measure company size
in terms of a common currency. Even though a company's stock may meet the
applicable market capitalization criterion, it may not be purchased if, (i)
in the Advisor's judgment, the issuer is in extreme financial difficulty,
(ii) the issuer is involved in a merger or consolidation or is the subject of
an acquisition or (iii) a significant portion of the issuer's securities are
closely held. Further, securities of real estate investment trusts will not
be acquired (except as a part of a merger, consolidation or acquisition of
assets). In addition, the Advisor may exclude the stock of a company that
otherwise meets applicable market capitalization criterion if the Advisor
determines in its best judgment that other conditions exist that make the
purchase of such stock inappropriate.
Deviation from strict market capitalization weighting will also occur
because the Advisor intends to purchase round lots only. Furthermore, in
order to retain sufficient liquidity, the relative amount of any security
held may be reduced from time to time from the level which strict adherence
to market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of assets may be invested in interest-bearing
obligations, such as money-market instruments for this purpose, thereby
causing further deviation from strict market capitalization weighting.
Block purchases of eligible securities may be made at opportune prices
even though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of market capitalization weighting
would otherwise require. In addition, the U.S. 9-10 Small Company Portfolio
and each Small Company Series may, in exchange for the issuance of shares,
acquire securities eligible for purchase or otherwise represented in their
portfolios at the time of the exchange. (See "In Kind Purchases.") While
such purchases and acquisitions might cause a temporary deviation from market
capitalization weighting, they would ordinarily be made in anticipation of
further growth of assets.
If securities must be sold in order to obtain funds to make redemption
payments, they may be repurchased as additional cash becomes available. In
most instances, however, management would anticipate selling securities which
had appreciated sufficiently to be eligible for sale and, therefore, would
not need to repurchase such securities. (See "PORTFOLIO CHARACTERISTICS AND
POLICIES - SMALL COMPANY PORTFOLIOS - Portfolio Transactions.")
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase take place with
every trade when the securities markets are open for trading due, primarily,
to price fluctuations of such securities. On a not less than semi-annual
basis, the Advisor will determine the market capitalization of the largest
small company eligible for investment. Common stocks whose market
capitalizations are not greater than such company will be purchased.
Additional investments generally will not be made in securities which have
appreciated in value sufficiently to be excluded from the Advisor's then
current market capitalization limit for eligible portfolio securities. This
may result in further deviation from strict market capitalization weighting
and such deviation could be substantial if a significant amount of holdings
increase in value sufficiently to be excluded from the limit for eligible
securities, but not by a sufficient amount to warrant their sale. (See
"PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL COMPANY PORTFOLIOS -
Portfolio Transactions.") A further deviation from market capitalization
weighting may occur if a Portfolio invests a portion of its assets in
convertible debentures.
It is management's belief that the stocks of small companies offer, over
a long term, a prudent opportunity for capital appreciation, but, at the same
time, selecting a limited number of such issues for investment involves
greater risk than investing in a large number of them. The U.S. 9-10 Small
Company Portfolio and each Small Company Series intend to invest at least 80%
of their assets in equity securities of U.S., Japanese, United Kingdom,
European and Pacific Rim small companies, respectively.
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Generally, current income is not sought as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be selected for
investment do pay dividends. It is anticipated, therefore, that dividend
income will be received.
PORTFOLIO TRANSACTIONS
On a periodic basis, the Advisor will review the holdings of each of the
U.S. 9-10 Small Company Portfolio and Small Company Series and determine
which, at the time of such review, are no longer considered small U.S.,
Japanese, United Kingdom, European or Pacific Rim companies. The present
policy of the Advisor (except with respect to the 6-10 Series) is to consider
portfolio securities for sale when they have appreciated sufficiently to
rank, on a market capitalization basis, more than one full decile higher than
the company with the largest market capitalization that is eligible for
purchase by the U.S. 9-10 Small Company Portfolio or particular Small Company
Series as determined periodically by the Advisor. The Advisor may, from time
to time, revise that policy if, in the opinion of the Advisor, such revision
is necessary to maintain appropriate market capitalization weighting.
Securities which have depreciated in value since their acquisition will
not be sold solely because prospects for the issuer are not considered
attractive, or due to an expected or realized decline in securities prices in
general. Securities may be disposed of, however, at any time when, in the
Advisor's judgment, circumstances, such as (but not limited to) tender
offers, mergers and similar transactions, or bids made for block purchases at
opportune prices, warrant their sale. Generally, securities will not be sold
to realize short-term profits, but when circumstances warrant, they may be
sold without regard to the length of time held. Generally, securities will
be purchased with the expectation that they will be held for longer than one
year and will be held until such time as they are no longer considered an
appropriate holding in light of the policy of maintaining portfolios of
companies with small market capitalizations.
U.S. LARGE COMPANY PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
U.S. Large Company Portfolio seeks, as its investment objective, to
approximate the investment performance of the S&P 500 Index, both in terms of
the price of the Portfolio's shares and its total investment return. The
Portfolio pursues its investment objective by investing all of its assets in
U.S. Large Company Series of the Trust (the "U.S. Large Company Series"),
which has the same investment objective and policies as the Portfolio. U.S.
Large Company Series intends to invest in all of the stocks that comprise the
S&P 500 Index in approximately the same proportions as they are represented
in the Index. The amount of each stock purchased for the U.S. Large Company
Series, therefore, will be based on the issuer's respective market
capitalization. The S&P 500 Index is comprised of a broad and diverse group
of stocks most of which are traded on the NYSE. Generally, these are the
U.S. stocks with the largest market capitalizations and, as a group, they
represent approximately 70% of the total market capitalization of all
publicly traded U.S. stocks.
Under normal market conditions, at least 95% of the U.S. Large Company
Series' assets will be invested in the stocks that comprise the S&P 500
Index. A portion, however, generally not more than 5% of net assets, may be
invested in the same types of short-term fixed income obligations as may be
acquired by the DFA One-Year Fixed Income Portfolio, in order to maintain
liquidity or to invest temporarily uncommitted cash balances. (See "THE
FIXED INCOME PORTFOLIOS - Description of Securities and Obligations").
U.S. Large Company Series may also acquire stock index futures contracts
and options thereon in order to commit funds awaiting investment in stocks or
maintain cash liquidity. To the extent that the Series invests in stock
index futures contracts and options thereon for other than bona fide hedging
purposes, the Series will not purchase such futures contracts or options if
as a result more than 5% of its total assets would then consist of initial
margin deposits and premiums required to establish such contracts or options.
Such investments entail certain risks. (See "RISK FACTORS - ALL
PORTFOLIOS.")
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Ordinarily, portfolio securities will not be sold except to reflect
additions or deletions of the stocks that comprise the S&P 500 Index,
including mergers, reorganizations and similar transactions and, to the
extent necessary, to provide cash to pay redemptions of the U.S. Large
Company Series' shares. U.S. Large Company Series may lend securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of earning additional income. For information concerning Standard &
Poor's Corporation ("S&P") and disclaimers of S&P with respect to the U.S.
Large Company Portfolio and the U.S. Large Company Series, see "STANDARD &
POOR'S - INFORMATION AND DISCLAIMERS."
ENHANCED U.S. LARGE COMPANY PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
Enhanced U.S. Large Company Portfolio seeks, as its investment objective,
to achieve a total return which exceeds the total return performance of the
S&P 500 Index. The Portfolio pursues its investment objective by investing
all of its assets in Enhanced U.S. Large Company Series of the Trust (the
"Enhanced U.S. Large Company Series"). The Enhanced U.S. Large Company
Series will have the same investment objective and policies as the Portfolio.
Enhanced U.S. Large Company Series may invest in all of the stocks
represented in the S&P 500 Index, options on stock indices, stock index
futures, options on stock index futures, swap agreements on stock indices
and, to the extent permissible pursuant to the Investment Company Act of
1940, shares of investment companies that invest in stock indices. The S&P
500 Index is comprised of a broad and diverse group of stocks most of which
are traded on the NYSE. Generally, these are the U.S. stocks with the
largest market capitalizations and, as a group, they represent approximately
70% of the total market capitalization of all publicly traded U.S. stocks.
The Enhanced U.S. Large Company Series may, from time to time, also
invest in options on stock indices, stock index futures, options on stock
index futures and swap agreements based on indices other than, but similar
to, the S&P 500 Index (such instruments whether or not based on the S&P 500
Index hereinafter collectively referred to as "Index Derivatives"). The
Enhanced U.S. Large Company Series may invest all of its assets in Index
Derivatives. Certain of these Index Derivatives are speculative and may
subject the Portfolio to additional risks (See "RISK FACTORS - ALL
PORTFOLIOS"). Assets of the Enhanced U.S. Large Company Series not invested
in S&P 500 stocks or Index Derivatives may be invested in the same types of
short-term fixed income obligations as may be acquired by DFA Two-Year Global
Fixed Income Series and, to the extent allowed by the Investment Company Act
of 1940, shares of money market mutual funds (collectively, "Fixed Income
Investments") (See "INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME
PORTFOLIOS - Description of Investments"). The Series' investments in the
securities of other investment companies may involve duplication of certain
fees and expenses.
The percentage of assets of the Enhanced U.S. Large Company Series that
will be invested at any one time in S&P 500 Index stocks, Index Derivatives
and Fixed Income Investments may vary from time to time, within the
discretion of the Advisor and according to restraints imposed by the
Investment Company Act of 1940. The Enhanced U.S. Large Company Series will
maintain a segregated account consisting of liquid assets (or, as permitted
by applicable regulation, enter into offsetting positions) to cover its open
positions in Index Derivatives to avoid leveraging of the Series.
The Enhanced U.S. Large Company Series will enter into positions in
futures and options on futures only to the extent such positions are
permissible with respect to applicable rules of the Commodity Futures Trading
Commission without registering the Series or the Trust as a commodities pool
operator. In addition, the Enhanced U.S. Large Company Series may not be
able to utilize Index Derivatives to the extent otherwise permissible or
desirable because of constraints imposed by the Internal Revenue Code or by
unanticipated illiquidity in the marketplace for such instruments. For more
information about Index Derivatives, see "RISK FACTORS - ALL PORTFOLIOS."
It is the position of the Securities and Exchange Commission that
over-the-counter options are illiquid. Accordingly, the Enhanced U.S. Large
Company Series will invest in such options only to the extent consistent with
its 15% limit on investment in illiquid securities.
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STANDARD & POOR'S - INFORMATION AND DISCLAIMERS
Neither the U.S. Large Company Portfolio or the Enhanced U.S. Large
Company Portfolio (the "Large Company Portfolios"), nor the U.S. Large
Company Series or the Enhanced U.S. Large Company Series (the "Large Company
Series") are sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Large
Company Portfolios or the Large Company Series or any member of the public
regarding the advisability of investing in securities generally or in the
Large Company Portfolios or the Large Company Series particularly or the
ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Large Company Portfolios or the Large Company
Series is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Large Company Portfolios or the Large Company Series. S&P has
no obligation to take the needs of the Large Company Portfolios, the Large
Company Series or their respective owners into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and
has not participated in the determination of the prices and amount of the
Large Company Portfolios or the Large Company Series or the issuance or sale
of the Large Company Portfolios or the Large Company Series or in the
determination or calculation of the equation by which the Large Company
Portfolios or the Large Company Series is to be converted into cash. S&P has
no obligation or liability in connection with the administration, marketing
or trading of the Large Company Portfolios or the Large Company Series.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE
PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
LARGE CAP INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Large Cap International Portfolio is to
achieve long-term capital appreciation by investing in the stocks of non-U.S.
large companies. The investment objective of the Portfolio may not be
changed without the approval of the holders of a majority of its outstanding
shares. The Portfolio intends to invest in the stocks of large companies in
Europe, Australia and the Far East. Initially, the Portfolio invested in the
stocks of large companies in Japan, the United Kingdom, Germany, France,
Switzerland, Italy, Sweden, Hong Kong and Australia. As the Portfolio's
asset growth permits, it may invest in the stocks of large companies in
Spain, Singapore/Malaysia, the Netherlands, Belgium, Austria, Denmark,
Finland, Ireland, Norway and New Zealand.
Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in companies organized or having a majority of their assets
in or deriving a majority of their operating income in at least three
non-U.S. countries. The Portfolio reserves the right to invest in index
futures contracts to commit funds awaiting investment or to maintain
liquidity. To the extent that the Portfolio invests in index futures
contracts for other than bona fide hedging purposes, the Portfolio will not
purchase futures contracts if as a result more than 5% of its total assets
would then consist of initial margin deposits on such contracts. Such
investments entail certain risks. (See "RISK FACTORS - ALL PORTFOLIOS.")
The Portfolio also may invest up to 5% of its assets in convertible
debentures issued by large non-U.S. companies.
The Portfolio will be approximately market capitalization weighted. In
determining market capitalization weights, the Advisor, using its best
judgment, will seek to eliminate the effect of cross holdings on the
individual country weights. As a result, the weighting of certain countries
in the Portfolio may vary from their weighting in
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international indices such as those published by The Financial Times, Morgan
Stanley Capital International or Salomon/Russell. The Advisor, however, will
not attempt to account for cross holdings within the same country.
Generally, the companies whose stocks will be selected by the Advisor for the
Portfolio will be in the largest 50% in terms of market capitalization for
each country. The Advisor, however, may exclude the stock of such a company
if the Advisor determines in its best judgment that other conditions exist
that make the purchase of such stock for a Portfolio inappropriate.
Deviation from market capitalization weighting will occur because the
Portfolio intends to purchase round lots only. Furthermore, in order to
retain sufficient liquidity, the relative amount of any security held by the
Portfolio may be reduced from time to time from the level which adherence to
market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of the Portfolio's assets may be invested in
interest-bearing obligations, such as money market instruments, thereby
causing further deviation from market capitalization weighting. A further
deviation from market capitalization weighting may occur if the Portfolio
invests a portion of its assets in convertible debentures.
The Portfolio may make block purchases of eligible securities at
opportune prices even though such purchases exceed the number of shares
which, at the time of purchase, adherence to the policy of market
capitalization weighting would otherwise require. In addition, the Portfolio
may acquire securities eligible for purchase at the time of the exchange or
otherwise represented in the portfolio in exchange for the issuance of its
shares. (See "In Kind Purchases.") While such transactions might cause a
temporary deviation from market capitalization weighting, they would
ordinarily be made in anticipation of further growth of the assets of the
Portfolio.
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase by the
Portfolio take place with every trade when the securities markets are open
for trading due, primarily, to price fluctuations of such securities. On a
periodic basis, the Advisor will prepare lists of eligible large companies
that will be revised not less than semi-annually. Only common stocks whose
market capitalizations are not less than such minimum will be purchased by
the Portfolio. Additional investments will not be made in securities which
have depreciated in value to such an extent that they are not then considered
by the Advisor to be large companies. This may result in further deviation
from market capitalization weighting and such deviation could be substantial
if a significant amount of the Portfolio's holdings decrease in value
sufficiently to be excluded from the then current market capitalization
requirement for eligible securities, but not by a sufficient amount to
warrant their sale.
It is management's belief that the stocks of large companies offer, over
a long term, a prudent opportunity for capital appreciation, but, at the same
time, selecting a limited number of such issues for inclusion in the
Portfolio involves greater risk than including a large number of them. The
Advisor does not anticipate that a significant number of securities which
meet the market capitalization criteria will be selectively excluded from the
Portfolio.
The Portfolio does not seek current income as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
the Portfolio do pay dividends. It is anticipated, therefore, that the
Portfolio will receive dividend income.
Securities which have depreciated in value since their acquisition will
not be sold by the Portfolio solely because prospects for the issuer are not
considered attractive, or due to an expected or realized decline in
securities prices in general. Securities may be disposed of, however, at any
time when, in the Advisor's judgment, circumstances warrant their sale, such
as tender offers, mergers and similar transactions, or bids made for block
purchases at opportune prices. Generally, securities will not be sold to
realize short-term profits, but when circumstances warrant, they may be sold
without regard to the length of time held. Generally, securities will be
purchased with the expectation that they will be held for longer than one
year, and will be held until such time as they are no longer considered an
appropriate holding in light of the policy of maintaining a portfolio of
companies with large market capitalizations.
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DFA REAL ESTATE SECURITIES PORTFOLIO
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of DFA Real Estate Securities Portfolio is to
achieve long-term capital appreciation. The investment objective of the
Portfolio may not be changed without the affirmative vote of a majority of
the outstanding securities of the Portfolio. The Portfolio will concentrate
investments in readily marketable equity securities of companies whose
principal activities include development, ownership, construction,
management, or sale of residential, commercial or industrial real estate.
Investments will include, principally, equity securities of companies in the
following sectors of the real estate industry: certain real estate
investment trusts and companies engaged in residential construction and
firms, except partnerships, whose principal business is to develop commercial
property. In the future, the Advisor may determine to include companies in
other sectors of the real estate industry in the Portfolio.
The Portfolio will invest in shares of real estate investment trusts
("REITS"). REITS pool investors' funds for investment primarily in income
producing real estate or real estate related loans or interests. A REIT is
not taxed on income distributed to shareholders if it complies with several
requirements relating to its organization, ownership, assets, and income and
a requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. REITS
can generally be classified as Equity REITS, Mortgage REITS and Hybrid REITS.
Equity REITS invest the majority of their assets directly in real property
and derive their income primarily from rents. Equity REITS can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITS invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITS combine the
characteristics of both Equity REITS and Mortgage REITS. At the present
time, the Portfolio intends to invest only in Hybrid REITS and Equity REITS.
It is anticipated that, ordinarily, at least 80% of the net value of the
Portfolio will be invested in securities of companies in the U.S. real estate
industry. The Portfolio may invest a portion of its assets, ordinarily not
more than 20%, in high quality, highly liquid, fixed income securities such
as money market instruments, including short-term repurchase agreements. The
Portfolio will make equity investments only in securities traded in the U.S.
securities markets, principally on the NYSE, AMEX and OTC. In addition, the
Portfolio is authorized to lend its portfolio securities (see "SECURITIES
LOANS"), and to purchase and sell financial futures contracts and options
thereon. To the extent that the Portfolio invests in futures contracts or
options for other than bona fide hedging purposes, the Portfolio will not
purchase future contracts or options, if, as a result, an amount in excess of
5% of the net assets of the Portfolio would be deposited as initial margin
deposits and premiums required to establish such contracts or options.
PORTFOLIO STRUCTURE
The Portfolio will operate as a "diversified" investment company. The
Advisor has prepared and will maintain a schedule of eligible investments
consisting of equity securities of all companies in the sectors of the real
estate industry described above as being presently eligible for investment.
It is the intention of the Portfolio to purchase a portion of the equity
securities of all of these companies on a market capitalization weighted
basis.
The Portfolio will be structured by generally basing the amount of each
security purchased on the issuer's relative market capitalization in relation
to other eligible issuers in the real estate industry. However, even though
a company's stock may meet the applicable criteria described above, it will
not be purchased by the Portfolio if, at the time of purchase, in the
judgment of the Advisor, the issuer is in extreme financial difficulty or is
involved in a merger or consolidation or is the subject of an acquisition
which could result in the company no longer being considered principally
engaged in the real estate business. In addition, the Advisor may exclude
the securities of a company that otherwise meets the applicable criteria
described above if the Advisor determines in its best judgment that other
conditions exist that make the inclusion of such security inappropriate.
Deviation from strict market capitalization weighting will also occur in
the Portfolio because it intends to purchase round lots only. Furthermore,
in order to retain sufficient liquidity, the relative amount of any security
held by the Portfolio may be reduced from time to time from the level which
strict adherence to market capitalization weighting would otherwise require.
A portion, but generally not in excess of 20%, of the Portfolio's assets may
be invested in interest-bearing obligations, as described above, thereby
causing further deviation from strict market capitalization weighting.
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The Portfolio may make block purchases of eligible securities at
opportune prices even though such purchases exceed the number of shares
which, at the time of purchase, strict adherence to the policy of market
capitalization weighting would otherwise require. In addition, the Portfolio
may acquire securities eligible for purchase or otherwise represented in the
portfolio at the time of the exchange in exchange for the issuance of its
shares. (See "In Kind Purchases.") While such purchases and acquisitions
might cause a temporary deviation from market capitalization weighting, they
would ordinarily be made in anticipation of further growth of the assets of
the Portfolio. If securities must be sold in order to obtain funds to make
redemption payments, such securities may be repurchased by the Portfolio as
additional cash becomes available to it. However, the Portfolio has retained
the right to borrow to make redemption payments and is also authorized to
redeem its shares in kind. (See "REDEMPTION OF SHARES.") Further, because
the securities of certain companies whose shares are eligible for purchase
are thinly traded, the Portfolio might not be able to purchase the number of
shares that strict adherence to market capitalization weighting might
require. On not less than a semi-annual basis, the Advisor will prepare a
schedule of eligible portfolio companies. Only equity securities appearing
on the then current schedule will be purchased for the Portfolio.
Investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
the Portfolio do pay dividends. It is anticipated, therefore, that the
Portfolio will receive dividend income. Periodically, the Advisor may expand
the Portfolio's schedule of eligible investments to include equity securities
of companies in sectors of the real estate industry in addition to those
described above as eligible for investment as of the date of this prospectus.
PORTFOLIO TRANSACTIONS
The Portfolio does not intend to purchase or sell securities based on the
prospects for the economy, the securities markets or, generally, the
individual issuers whose shares are eligible for purchase. As described
under "Portfolio Structure," investments will be made in virtually all
eligible securities on a market capitalization weighted basis. This is a
passive approach to investment management that does not entail taking steps
to reduce the risk of loss by replacing portfolio equity securities with
other securities that appear to have the potential to provide better
investment performance.
Generally, securities will be purchased with the expectation that they
will be held for longer than one year. However, securities may be sold at
any time when, in the Advisor's judgment, circumstances warrant their sale.
Generally, securities will not be sold to realize short-term profits, but
when circumstances warrant, they may be sold without regard to the length of
time held.
VALUE PORTFOLIOS
PORTFOLIO CHARACTERISTICS AND POLICIES
The investment objective of each of these Portfolios is to achieve
long-term capital appreciation. U.S. Large Cap Value Portfolio and U.S.
Small Cap Value Portfolio will pursue their investment objectives by
investing all of their assets in U.S. Large Cap Value Series (the "Large Cap
Value Series") and U.S. Small Cap Value Series (the "Small Cap Value Series")
of the Trust, respectively. Each Value Series has the same investment
objective and policies as the corresponding Value Portfolio. Each of the
Series will invest in common stocks of U.S. companies with shares that have a
high book value in relation to their market value (a "book to market ratio").
A company's shares will be considered to have a high book to market ratio if
the ratio equals or exceeds the ratios of any of the 30% of companies with
the highest positive book to market ratios whose shares are listed on the
NYSE and, except as described under "Portfolio Structure," will be considered
eligible for investment. Large Cap Value Series will purchase common stocks
of companies whose market capitalizations equal or exceed that of the company
having the median market capitalization of companies whose shares are listed
on the NYSE, and the Small Cap Value Series will purchase common stocks of
companies whose market capitalizations are smaller than such company.
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PORTFOLIO STRUCTURE
Each Series will operate as a "diversified" investment company. Further,
neither Series will invest more than 25% of its total assets in securities of
companies in a single industry. Ordinarily, at least 80% of the assets of
each Series will be invested in a broad and diverse group of readily
marketable common stocks of U.S. companies with high book to market ratios,
as described above. The Series may invest a portion of their assets,
ordinarily not more than 20%, in high quality, highly liquid fixed income
securities such as money market instruments, including short-term repurchase
agreements. The Series will purchase securities that are listed on the
principal U.S. national securities exchanges and traded OTC.
Each of the Value Series will be structured on a market capitalization
basis, by generally basing the amount of each security purchased on the
issuer's relative market capitalization, with a view to creating in each
Series a reasonable reflection of the relative market capitalizations of its
portfolio companies. However, the Advisor may exclude the securities of a
company that otherwise meets the applicable criteria described above if the
Advisor determines in its best judgment that other conditions exist that make
the inclusion of such security inappropriate.
Deviation from strict market capitalization weighting will also occur in
the Series because they intend to purchase round lots only. In order to
retain sufficient liquidity, the relative amount of any security held by a
Series may be reduced, from time to time, from the level which strict
adherence to market capitalization weighting would otherwise require. A
portion, but generally not in excess of 20%, of a Series' assets may be
invested in interest-bearing obligations, as described above, thereby causing
further deviation from strict market capitalization weighting. The Series
may make block purchases of eligible securities at opportune prices even
though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of market capitalization weighting
would otherwise require. In addition, the Series and the Portfolios may
acquire securities eligible for purchase at the time of the exchange or
otherwise represented in their portfolios in exchange for the issuance of
their shares. (See "In Kind Purchases.") While such purchases and
acquisitions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
the assets of a Series.
On not less than a semi-annual basis, for each Series the Advisor will
calculate the book to market ratio necessary to determine those companies
whose stocks are eligible for investment.
PORTFOLIO TRANSACTIONS
The Series do not intend to purchase or sell securities based on the
prospects for the economy, the securities markets or the individual issuers
whose shares are eligible for purchase. As described under "Portfolio
Structure," investments will be made in virtually all eligible securities on
a market capitalization weighted basis. This is a passive approach to
investment management that does not entail taking steps to reduce risk by
replacing portfolio equity securities with other securities that appear to
have the potential to provide better investment performance.
Generally, securities will be purchased with the expectation that they
will be held for longer than one year. Large Cap Value Series may sell
portfolio securities when the issuer's market capitalization falls
substantially below that of the issuer with the minimum market capitalization
which is then eligible for purchase by the Series, and Small Cap Value
Series may sell portfolio securities when the issuer's market capitalization
increases to a level that substantially exceeds that of the issuer with the
largest market capitalization which is then eligible for investment by the
Series. However, securities may be sold at any time when, in the Advisor's
judgment, circumstances warrant their sale.
In addition, Large Cap Value Series may sell portfolio securities when
their book to market ratio falls substantially below that of the security
with the lowest such ratio that is then eligible for purchase by the Series.
Small Cap Value Series may also sell portfolio securities in the same
circumstances, however, that Series anticipates generally to retain
securities of issuers with relatively smaller market capitalizations for
longer periods, despite any decrease in the issuer's book to market ratio.
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RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of RWB/DFA International High Book to Market
Portfolio is to achieve long-term capital appreciation. The Portfolio
pursues its objective by investing all of its assets in The DFA International
Value Series of the Trust (the "International Value Series"), which has the
same investment objective and policies as the Portfolio. The International
Value Series operates as a diversified investment company and seeks to
achieve its objective by investing in the stocks of large non-U.S. companies
that have a high book value in relation to their market value (a "book to
market ratio"). The shares of a company in any given country will be
considered to have a high book to market ratio if the ratio equals or exceeds
the ratios of any of the 30% of companies in that country with the highest
positive book to market ratios whose shares are listed on a major exchange,
and, except as described below, will be considered eligible for investment.
The International Value Series intends to invest in the stocks of large
companies in countries with developed markets. Initially, the International
Value Series will invest in the stocks of large companies in Japan, the
United Kingdom, Germany, France, Switzerland, Italy, Belgium, Spain, the
Netherlands, Sweden, Hong Kong, Singapore and Australia. As the Series'
asset growth permits, it may invest in the stocks of large companies in other
developed markets.
Under normal market conditions, at least 65% of the International Value
Series' assets will be invested in companies organized or having a majority
of their assets in or deriving a majority of their operating income in at
least three non-U.S. countries, and no more than 40% of the Series' assets
will be invested in such companies in any one country. The International
Value Series reserves the right to invest in index futures contracts to
commit funds awaiting investment or to maintain liquidity. To the extent
that the International Value Series invests in futures contracts for other
than bona fide hedging purposes, the Series will not purchase futures
contracts if as a result more than 5% of its total assets would then consist
of initial margin deposits on such contracts. Such investments entail
certain risks. (See "RISK FACTORS - ALL PORTFOLIOS.") The International
Value Series also may invest up to 5% of its assets in convertible debentures
issued by large non-U.S. companies.
The International Value Series intends to invest in companies having at
least $500 million of market capitalization, and the Series will be
approximately market capitalization weighted. In determining market
capitalization weights, the Advisor, using its best judgment, will seek to
eliminate the effect of cross holdings on the individual country weights. As
a result, the weighting of certain countries in the International Value
Series may vary from their weighting in international indices such as those
published by The Financial Times, Morgan Stanley Capital International or
Salomon/Russell. The Advisor, however, will not attempt to account for cross
holding within the same country. The Advisor may exclude the stock of a
company that otherwise meets the applicable criteria if the Advisor
determines in its best judgment that other conditions exist that make the
purchase of such stock for the International Value Series inappropriate.
Deviation from market capitalization weighting will occur because the
International Value Series intends to purchase round lots only. Furthermore,
in order to retain sufficient liquidity, the relative amount of any security
held by the International Value Series may be reduced from time to time from
the level which adherence to market capitalization weighting would otherwise
require. A portion, but generally not in excess of 20%, of the International
Value Series' assets may be invested in interest-bearing obligations, such as
money-market instruments, thereby causing further deviation from market
capitalization weighting. Such investments would be made on a temporary
basis pending investment in equity securities pursuant to the International
Value Series investment objective. A further deviation from market
capitalization weighting may occur if the International Value Series invests
a portion of its assets in convertible debentures.
The International Value Series may make block purchases of eligible
securities at opportune prices even though such purchases exceed the number
of shares which, at the time of purchase, adherence to the policy of market
capitalization weighting would otherwise require. In addition, the
International Value Series may acquire securities eligible for purchase at
the time of the exchange or otherwise represented in its portfolio in
exchange for the issuance of its shares. (See "In Kind Purchases.") While
such transactions might cause a temporary deviation from market
capitalization weighting, they would ordinarily be made in anticipation of
further growth of the assets of the International Value Series.
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Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the International Value Series take place with every trade when
the securities markets are open for trading due, primarily, to price
fluctuations of such securities. On a periodic basis, the Advisor will
prepare lists of eligible large companies with high book to market ratios
whose stock are eligible for investment; such list will be revised not less
than semi-annually. Only common stocks whose market capitalizations are not
less than the minimum on such list will be purchased by the International
Value Series. Additional investments will not be made in securities which
have depreciated in value to such an extent that they are not then considered
by the Advisor to be large companies. This may result in further deviation
from market capitalization weighting, and such deviation could be substantial
if a significant amount of the International Value Series' holdings decrease
in value sufficiently to be excluded from the then current market
capitalization requirement for eligible securities, but not by a sufficient
amount to warrant their sale.
It is management's belief that the stocks of large companies with high
book to market ratios offer, over a long term, a prudent opportunity for
capital appreciation, but, at the same time, selecting a limited number of
such issues for inclusion in the International Value Series involves greater
risk than including a large number of them. The Advisor does not anticipate
that a significant number of securities which meet the market capitalization
criteria will be selectively excluded from the International Value Series.
The International Value Series does not seek current income as an
investment objective and investments will not be based upon an issuer's
dividend payment policy or record. However, many of the companies whose
securities will be included in the International Value Series do pay
dividends. It is anticipated, therefore, that the International Value Series
will receive dividend income.
Securities which have depreciated in value since their acquisition will
not be sold by the International Value Series solely because prospects for
the issuer are not considered attractive, or due to an expected or realized
decline in securities prices in general. Securities may be disposed of,
however, at any time when, in the Advisor's judgment, circumstances warrant
their sale, such as tender offers, mergers and similar transactions, or bids
made for block purchases at opportune prices. Generally, securities will not
be sold to realize short-term profits, but when circumstances warrant, they
may be sold without regard to the length of time held. Generally, securities
will be purchased with the expectation that they will be held for longer than
one year, and will be held until such time as they are no longer considered
an appropriate holding in light of the policy of maintaining a portfolio of
companies with large market capitalizations and high book to market ratios.
DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the DFA International Small Cap Value
Portfolio is to achieve long-term capital appreciation. The Portfolio
pursues its objective by investing in the stocks of small non-U.S. companies
that have a high book to market ratio. The Investment Committee of the
Advisor will initially set the standards for determining whether the shares
of a company in any given country will be considered to have a high book to
market ratio. Such shares will be considered eligible for investment. The
Investment Committee will periodically review its standards for determining
high book to market value and will adjust the standards accordingly. The
Portfolio intends to invest in the stocks of small companies in countries
with developed markets. Initially, the Portfolio will invest in the stocks
of small companies in Japan, the United Kingdom, Germany, France,
Switzerland, Italy, Belgium, Spain, the Netherlands, Sweden, Hong Kong,
Singapore and Australia. As the Portfolio's asset growth permits, it may
invest in the stocks of small companies in other developed markets.
Under normal market conditions, at least 65% of the Portfolio's assets
will be invested in companies organized or having a majority of their assets
in or deriving a majority of their operating income in at least three
non-U.S. countries and no more than 40% of the Portfolio's assets will be
invested in such companies in any one country. The Portfolio reserves the
right to invest in index futures contracts to commit funds awaiting
investment or to maintain liquidity. To the extent that the Portfolio
invests in futures contracts for other than bona fide hedging transactions,
the Portfolio will not purchase futures contracts if as a result more than 5%
of its total assets would then consist of initial margin deposits on such
contracts. The Portfolio also may invest up to 5% of its assets in
convertible debentures issued by small non-U.S. companies.
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The Portfolio intends to invest in companies having no more than $500
million of market capitalization. The Advisor believes that such maximum
amount accounts for variations in company size among countries and provides a
sufficient universe of eligible companies. The Portfolio will be
approximately market capitalization weighted. In determining market
capitalization weights, the Advisor, using its best judgment, will seek to
eliminate the effect of cross holdings on the individual country weights. As
a result, the weighting of certain countries in the Portfolio may vary from
their weighting in international indices such as those published by The
Financial Times, Morgan Stanley Capital International or Salomon/Russell.
The Advisor, however, will not attempt to account for cross holding within
the same country. The Advisor may exclude the stock of a company that
otherwise meets the applicable criteria if the Advisor determines in its best
judgment that other conditions exist that make the purchase of such stock for
the Portfolio inappropriate.
Deviation from market capitalization weighting will occur because the
Portfolio intends to purchase round lots only. Furthermore, in order to
retain sufficient liquidity, the relative amount of any security held by the
Portfolio may be reduced from time to time from the level which adherence to
market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of the Portfolio's assets may be invested in
interest-bearing obligations, such as money-market instruments, thereby
causing further deviation from market capitalization weighting. Such
investments would be made on a temporary basis pending investment in equity
securities pursuant to the Portfolio's investment objective. A further
deviation from market capitalization weighting may occur if the Portfolio
invests a portion of its assets in convertible debentures.
The Portfolio may make block purchases of eligible securities at
opportune prices even though such purchases exceed the number of shares
which, at the time of purchase, adherence to the policy of market
capitalization weighting would otherwise require. In addition, the Portfolio
may acquire securities eligible for purchase at the time of the exchange or
otherwise represented in the portfolio in exchange for the issuance of its
shares. (See "In Kind Purchases.") While such transactions might cause a
temporary deviation from market capitalization weighting, they would
ordinarily be made in anticipation of further growth of the assets of the
Portfolio.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Portfolio take place with every trade when the securities
markets are open for trading due, primarily, to price fluctuations of such
securities. On a periodic basis, the Advisor will prepare a list of eligible
small companies with high book to market ratios whose stock are eligible for
investment; such list will be revised not less than semi-annually. Only
common stocks whose market capitalizations are not greater than the maximum
on such list will be purchased by the Portfolio. Additional investments will
not be made in securities which have appreciated in value to such an extent
that they are not then considered by the Advisor to be small companies. This
may result in further deviation from market capitalization weighting, and
such deviation could be substantial if a significant amount of the
Portfolio's holdings increase in value sufficiently to be excluded from the
then current market capitalization requirement for eligible securities, but
not by a sufficient amount to warrant their sale.
It is management's belief that the stocks of small companies with high
book to market ratios offer, over a long term, a prudent opportunity for
capital appreciation, but, at the same time, selecting a limited number of
such issues for inclusion in the Portfolio involves greater risk than
including a large number of them. The Advisor does not anticipate that a
significant number of securities which meet the market capitalization
criteria will be selectively excluded from the Portfolio.
The Portfolio does not seek current income as an investment objective and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
the Portfolio do pay dividends. It is anticipated, therefore, that the
Portfolio will receive dividend income.
The Portfolio does not intend to purchase or sell securities based on the
prospects for the economy, the securities market or the individual issuers
whose shares are eligible for purchase. Securities may be disposed of,
however, at any time when, in the Advisor's judgment, circumstances warrant
their sale, such as tender offers, mergers and similar transactions, or bids
made for block purchases at opportune prices. Generally, securities will not
be sold to realize short-term profits, but when circumstances warrant, they
may be sold without regard to the length of time held. Generally, securities
will be purchased with the expectation that they will be held for longer than
one year, and will be held until such time as they are no longer considered
an appropriate holding in light of the policy of maintaining a portfolio of
companies with small market capitalizations and high book to market ratios.
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EMERGING MARKETS PORTFOLIO AND
EMERGING MARKETS SMALL CAP PORTFOLIO
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of both the Emerging Markets Portfolio and the
Emerging Markets Small Cap Portfolio is to achieve long-term capital
appreciation. The Emerging Markets Portfolio pursues its objective by
investing all of its assets in the Emerging Markets Series of the Trust (the
"Emerging Markets Series"), which has the same investment objective and
policies as the Portfolio. The Emerging Markets Small Cap Portfolio pursues
its objective by investing all of its assets in the Emerging Markets Small
Cap Series of the Trust (the "Emerging Markets Small Cap Series"), which has
the same investment objective and policies as the Portfolio. Each Series
operates as a diversified investment company and seeks to achieve its
investment objective by investing in emerging markets designated by the
Trust's Board of Trustees in consultation with the Advisor ("Approved
Markets"). Each Series invests its assets primarily in Approved Market
equity securities listed on bona fide securities exchanges or actively traded
on OTC markets. These exchanges or OTC markets may be either within or
outside the issuer's domicile country, and the securities may be listed or
traded in the form of International Depository Receipts ("IDRs") or American
Depository Receipts ("ADRs").
SERIES' CHARACTERISTICS AND POLICIES
The Emerging Markets Series will seek a broad market coverage of larger
companies within each Approved Market. This Series will attempt to own
shares of companies whose aggregate overall share of the Approved Market's
total public market capitalization is at least in the upper 40% of such
capitalization, and can be as large as 75%. The Emerging Markets Series may
limit the market coverage in the smaller emerging markets in order to limit
purchases of small market capitalization companies.
The Emerging Markets Small Cap Series will seek a broad market coverage
of smaller companies within each Approved Market. This Series will attempt
to own shares of companies whose market capitalization is less than $1.5
billion. On a periodic basis, the Advisor will review the holdings of the
Emerging Markets Small Cap Series and determine which, at the time of such
review, are no longer considered small emerging market companies. The
present policy is to consider portfolio securities for sale when they have
appreciated sufficiently to rank, on a market capitalization basis, 100%
larger than the largest market capitalization that is eligible for purchase
as set by the Advisor for that Approved Market.
Each Series may not invest in all such companies or Approved Markets
described above or achieve approximate market weights, for reasons which
include constraints imposed within Approved Markets (E.G., restrictions on
purchases by foreigners), and each Series' policy not to invest more than 25%
of its assets in any one industry.
Under normal market conditions, the Emerging Markets Series will invest
at least 65% of its assets in Approved Market securities, and the Emerging
Markets Small Cap Series will invest at least 65% of its assets in small
company (as defined above) Approved Market securities. Approved Market
securities are defined to be (a) securities of companies organized in a
country in an Approved Market or for which the principal trading market is in
an Approved Market, (b) securities issued or guaranteed by the government of
an Approved Market country, its agencies or instrumentalities, or the central
bank of such country, (c) securities denominated in an Approved Market
currency issued by companies to finance operations in Approved Markets, (d)
securities of companies that derive at least 50% of their revenues primarily
from either goods or services produced in Approved Markets or sales made in
Approved Markets and (e) Approved Markets equity securities in the form of
depositary shares. Securities of Approved Markets may include securities of
companies that have characteristics and business relationships common to
companies in other countries. As a result, the value of the securities of
such companies may reflect economic and market forces in such other countries
as well as in the Approved Markets. The Advisor, however, will select only
those companies which, in its view, have sufficiently strong exposure to
economic and market forces in Approved Markets such that their value will
tend to reflect developments in Approved Markets to a greater extent than
developments in other regions. For example, the Advisor may invest in
companies organized and located in the United States or other countries
outside of Approved Markets, including companies having their entire
production facilities outside of Approved Markets, when such companies meet
the definition of Approved Markets securities so long as the Advisor believes
at the time of investment that the value of the company's securities will
reflect principally conditions in Approved Markets.
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The Advisor defines the term "emerging market" to mean a country which is
considered to be an emerging market by the International Finance Corporation.
Approved emerging markets may not include all such emerging markets. In
determining whether to approve markets for investment, the Board of Trustees
will take into account, among other things, market liquidity, investor
information, government regulation, including fiscal and foreign exchange
repatriation rules and the availability of other access to these markets by
the investors of each of the Emerging Markets Series and the Emerging Markets
Small Cap Series.
The following countries are currently designated as Approved Markets:
Argentina, Brazil, Chile, Indonesia, Malaysia, Mexico, Philippines, Portugal,
South Korea, Thailand, Turkey, and Israel. Countries that may be approved in
the future include but are not limited to Republic of China (Taiwan), which
is effectively closed to foreign investors at present, and Colombia, Greece,
India, Jordan, Nigeria, Pakistan, Venezuela and Zimbabwe.
Each Series may invest up to 35% of its assets in securities of issuers
that are not Approved Markets securities, but whose issuers the Advisor
believes derive a substantial proportion, but less than 50%, of their total
revenues from either goods and services produced in, or sales made in,
Approved Markets.
Pending the investment of new capital in Approved Market equity
securities, each Series will typically invest in money market instruments or
other highly liquid debt instruments denominated in U.S. dollars (including,
without limitation, repurchase agreements). In addition, each Series may,
for liquidity, or for temporary defensive purposes during periods in which
market or economic or political conditions warrant, purchase highly liquid
debt instruments or hold freely convertible currencies, although neither
Series expects the aggregate of all such amounts to exceed 10% of its net
assets under normal circumstances.
Both Series also may invest in shares of other investment companies that
invest in one or more Approved Markets, although they intend to do so only
where access to those markets is otherwise significantly limited. The Series
may also invest in money market mutual funds for temporary cash management
purposes. The Investment Company Act of 1940 limits investment by a Series
in shares of other investment companies to no more than 10% of the value of a
Series' total assets. If a Series invests in another investment company, the
Series' shareholders will bear not only their proportionate share of expenses
of the Series (including operating expenses and the fees of the Advisor), but
also will bear indirectly similar expenses of the underlying investment
company. In some Approved Markets, it will be necessary or advisable for a
Series to establish a wholly-owned subsidiary or a trust for the purpose of
investing in the local markets. Each Series also may invest up to 5% of its
assets in convertible debentures issued by companies organized in Approved
Markets.
PORTFOLIO STRUCTURE
Each Series' policy of seeking broad market diversification means that
the Advisor will not utilize "fundamental" securities research techniques in
identifying securities selections. The decision to include or exclude the
shares of an issuer will be made primarily on the basis of such issuer's
relative market capitalization determined by reference to other companies
located in the same country. Company size is measured in terms of reference
to other companies located in the same country and in terms of local
currencies in order to eliminate the effect of variations in currency
exchange rates. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be included in a Series for one or more
of a number of reasons. For example, in the Advisor's judgment, the issuer
may be considered in extreme financial difficulty, a material portion of its
securities may be closely held and not likely available to support market
liquidity, or the issuer may be a "passive foreign investment company" (as
defined in the Internal Revenue Code of 1986, as amended). To this extent,
there will be the exercise of discretion and consideration by the Advisor
which would not be present in the management of a portfolio seeking to
represent an established index of broadly traded domestic securities (such as
the S&P 500 Index). The Advisor will also exercise discretion in determining
the allocation of capital as between Approved Markets.
It is management's belief that equity investments offer, over a long
term, a prudent opportunity for capital appreciation, but, at the same time,
selecting a limited number of such issues for inclusion in a Series involves
greater risk than including a large number of them.
Neither Series seeks current income as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in
a Series do pay dividends. It is anticipated, therefore, that both Series
will receive dividend income.
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Generally, securities will be purchased with the expectation that they
will be held for longer than one year. However, securities may be disposed of
at any time when, in the Advisor's judgment, circumstances warrant their
sale. Generally, securities will not be sold to realize short-term profits,
but when circumstances warrant, they may be sold without regard to the length
of time held. The portfolio turnover rate of the Emerging Markets Small Cap
Series ordinarily is anticipated to be low, and is not expected to exceed 20%
per year.
For the purpose of converting U.S. dollars to another currency, or vice
versa, or converting one foreign currency to another foreign currency, each
Series may enter into forward foreign exchange contracts. In addition, to
hedge against changes in the relative value of foreign currencies, each
Series may purchase foreign currency futures contracts. A Series will only
enter into such a futures contract if it is expected that the Series will be
able readily to close out such contract. There can, however, be no assurance
that it will be able in any particular case to do so, in which case the
Series may suffer a loss.
SECURITIES LOANS
All of the Portfolios and the corresponding Series of the Trust are
authorized to lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of earning additional income, although
inasmuch as the Feeder Portfolios will only hold shares of a corresponding
Series, these Portfolios do not intend to lend those shares. While a
Portfolio or Series may earn additional income from lending securities, such
activity is incidental to the investment objective of a Portfolio or Series.
The value of securities loaned may not exceed 33 1/3% of the value of a
Portfolio's or Series' total assets. In connection with such loans, a
Portfolio or Series will receive collateral consisting of cash or U.S.
Government securities, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
In addition, the Portfolios and Series will be able to terminate the loan at
any time and will receive reasonable interest on the loan, as well as amounts
equal to any dividends, interest or other distributions on the loaned
securities. In the event of the bankruptcy of the borrower, the Fund or the
Trust could experience delay in recovering the loaned securities. Management
believes that this risk can be controlled through careful monitoring
procedures.
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME PORTFOLIOS
DFA ONE-YEAR FIXED INCOME PORTFOLIO
The investment objective of DFA One-Year Fixed Income Portfolio is to
achieve a stable real value (i.e. a return in excess of the rate of
inflation) of invested capital with a minimum of risk. This objective will
be pursued by investing the assets of the Portfolio in DFA One-Year Fixed
Income Series of the Trust (the "One-Year Fixed Income Series"), which has
the same investment objective and policies as the Portfolio. The One-Year
Fixed Income Series will invest in U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper,
repurchase agreements and obligations of supranational organizations.
Generally, the Series will acquire obligations which mature within one year
from the date of settlement, but substantial investments may be made in
obligations maturing within two years from the date of settlement when
greater returns are available. It is the Series' policy that the weighted
average length of maturity of investments will not exceed one year. The
Series principally invests in certificates of deposit, commercial paper,
bankers' acceptances, notes and bonds. The Series will invest more than 25%
of its total assets in obligations of U.S. and/or foreign banks and bank
holding companies when the yield to maturity on these instruments exceeds the
yield to maturity on all other eligible portfolio investments of similar
quality for a period of five consecutive days when the NYSE is open for
trading. (See "Investments in the Banking Industry.")
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DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
The investment objective of DFA Two-Year Corporate Fixed Income Portfolio
is to maximize total returns consistent with the preservation of capital.
This objective will be pursued by investing the assets of the Portfolio in
DFA Two-Year Corporate Fixed Income Series of the Trust (the "Two-Year
Corporate Fixed Income Series"). The Two-Year Corporate Fixed Income Series
will have the same investment objective and policies as the Portfolio. The
Two-Year Corporate Fixed Income Series will invest in U.S. government
obligations, U.S. government agency obligations, dollar denominated
obligations of foreign issuers issued in the U.S., bank obligations,
including U.S. subsidiaries and branches of foreign banks, corporate
obligations, commercial paper, repurchase agreements and obligations of
supranational organizations. It is the Series' policy to acquire obligations
which mature within two years from the date of settlement. The Series
principally invests in certificates of deposit, commercial paper, bankers'
acceptances, notes and bonds. The Series will invest more than 25% of its
total assets in obligations of U.S. and/or foreign banks and bank holding
companies when the yield to maturity on these instruments exceeds the yield
to maturity on all other eligible portfolio investments of similar quality
for a period of five consecutive days when the NYSE is open for trading. (See
"Investments in the Banking Industry.")
DFA TWO-YEAR GLOBAL FIXED INCOME PORTFOLIO
The investment objective of DFA Two-Year Global Fixed Income Portfolio is
to maximize total returns consistent with preservation of capital. This
objective will be pursued by investing the assets of the Portfolio in DFA
Two-Year Global Fixed Income Series of the Trust (the "Two-Year Global Fixed
Income Series"). The Two-Year Global Fixed Income Series will have the same
investment objective and policies as the Portfolio. The Two-Year Global
Fixed Income Series will invest in obligations issued or guaranteed by the
U.S. and foreign governments, their agencies and instrumentalities, corporate
debt obligations, bank obligations, commercial paper, repurchase agreements,
obligations of other domestic and foreign issuers having quality ratings
meeting the minimum standards described in "Description of Investments,"
securities of domestic or foreign issuers denominated in U.S. dollars but not
trading in the United States, and obligations of supranational organizations,
such as the World Bank, the European Investment Bank, European Economic
Community and European Coal and Steel Community. At the present time, the
Advisor expects that most investments will be made in the obligations of
issuers which are in developed countries, such as those countries which are
members of the Organization of Economic Cooperations and Development
("OECD"). However, in the future, the Advisor anticipates investing in
issuers located in other countries as well. Under normal market conditions,
the Series will invest at least 65% of the value of its assets in issuers
organized or having a majority of their assets in, or deriving a majority of
their operating income in, at least three different countries, one of which
may be the United States.
The Series will acquire obligations which mature within two years from
the date of settlement. Because many of the Series' investments will be
denominated in foreign currencies, the Series will also enter into forward
foreign currency contracts solely for the purpose of hedging against
fluctuations in currency exchange rates. The Series will invest more than
25% of its total assets in obligations of U.S. and/or foreign banks and bank
holding companies when the yield to maturity on these instruments exceeds the
yield to maturity on all other eligible portfolio investments of similar
quality for a period of five consecutive days when the NYSE is open for
trading. (See "Investment in the Banking Industry.")
DFA GLOBAL FIXED INCOME PORTFOLIO
The investment objective of DFA Global Fixed Income Portfolio is to
provide a market rate of return for a fixed income portfolio with low
relative volatility of returns. The Portfolio will invest primarily in
obligations issued or guaranteed by the U.S. and foreign governments, their
agencies and instrumentalities, obligations of other foreign issuers rated AA
or better, corporate debt obligations, bank obligations, commercial paper
rated as set forth in "Description of Investments" and supranational
organizations, such as the World Bank, the European Investment Bank, European
Economic Community, and European Coal and Steel Community. At the present
time, the Advisor expects that most investments will be made in the
obligations of issuers which are developed countries, such as those countries
which are members of the Organization of Economic Cooperation and Development
(OECD). However, in the future, the Advisor anticipates investing in issuers
located in other countries as well. Under normal market conditions, the
Portfolio will invest at least 65% of the value of its assets in issuers
organized or having a majority of their assets in, or deriving a majority of
their operating income in, at least three different
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countries, one of which may be the United States. The Portfolio will acquire
obligations which mature within ten years from the date of settlement.
Because many of the Portfolio's investments will be denominated in foreign
currencies, the Portfolio will also enter into forward foreign currency
contracts solely for the purpose of hedging against fluctuations in currency
exchange rates.
DFA TWO-YEAR GOVERNMENT PORTFOLIO
The investment objective of DFA Two-Year Government Portfolio is to
maximize total returns available from the universe of debt obligations of the
U.S. government and U.S. government agencies and consistent with the
preservation of capital. This objective will be pursued by investing the
assets of the Portfolio in the DFA Two-Year Government Series of the Trust
(the "Two-Year Government Series"). The Two-Year Government Series will have
the same investment objective and policies as the Portfolio. Generally, the
Two-Year Government Series will acquire U.S. government obligations and U.S.
government agency obligations that mature within two years from the date of
settlement. The Series will also acquire repurchase agreements.
DFA FIVE-YEAR GOVERNMENT PORTFOLIO
The investment objective of DFA Five-Year Government Portfolio is to
maximize total returns available from the universe of debt obligations of the
U.S. government and U.S. government agencies. Generally, the Portfolio will
acquire U.S. government obligations and U.S. government agency obligations
that mature within five years from the date of settlement. The Portfolio
will also acquire repurchase agreements.
DFA INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO
The investment objective of DFA Intermediate Government Fixed Income
Portfolio is to earn current income consistent with preservation of capital.
The Portfolio will invest in non-callable obligations issued or guaranteed by
the U.S. government and U.S. government agencies, AAA-rated,
dollar-denominated obligations of foreign governments, obligations of
supranational organizations, and futures contracts on U.S. Treasury
securities. Since government guaranteed mortgage-backed securities are
considered callable, such securities will not be included in the Portfolio.
Generally, the Portfolio will hold securities with maturities of between
five and fifteen years. The Portfolio will not shift the maturity of its
investments in anticipation of interest rate movements and ordinarily will
have an average weighted maturity of between seven to ten years. One of the
benefits of the Portfolio is expected to be that in a period of steeply
falling interest rates, the Portfolio should perform well because of its
average weighted maturity and the high quality and non-callable nature of its
investments. The Portfolio is expected to match or exceed the returns of the
Lehman Brothers Treasury Index, without exceeding the volatility of that
Index.
The Portfolio may invest more than 5% of its assets in the obligations of
foreign governments. Those obligations at the time of purchase must be
either rated in the highest rating category of a nationally recognized
statistical rating organization or, in the case of any obligation that is
unrated, of comparable quality. The Portfolio also may invest in futures
contracts on U.S. Treasury securities or options on such contracts for the
purposes of remaining fully invested and maintaining liquidity to pay
redemptions. However, the Portfolio will not purchase futures contracts or
options thereon if as a result more than 5% of its total assets would then
consist of initial and variation margin deposits on such contracts or
options. Such investments entail certain risks. (See "RISK FACTORS - ALL
PORTFOLIOS.")
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DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which may
be acquired by the Fixed Income Portfolios, the One-Year Fixed Income, Two-Year
Corporate Fixed Income, Two-Year Government and Two-Year Global Fixed Income
Series.
PERMISSIBLE
CATEGORIES:
-----------
DFA One-Year Fixed Income Series 1-6, 8
DFA Two-Year Corporate Fixed Income Series 1-6, 8
DFA Two-Year Government Series 1, 2, 6
DFA Five-Year Government Portfolio 1, 2, 6
DFA Two-Year Global Fixed Income Series 1-10
DFA Global Fixed Income Portfolio 1-10
DFA Intermediate Government Fixed Income Portfolio 1, 2, 6, 7, 8
1. U.S. GOVERNMENT OBLIGATIONS - Debt securities issued by the U.S.
Treasury which are direct obligations of the U.S. government, including bills,
notes and bonds.
2. U.S. GOVERNMENT AGENCY OBLIGATIONS - Issued or guaranteed by U.S.
government-sponsored instrumentalities and federal agencies, including the
Federal National Mortgage Association, Federal Home Loan Bank and the Federal
Housing Administration.
3. CORPORATE DEBT OBLIGATIONS - Non-convertible corporate debt securities
(e.g., bonds and debentures) which are issued by companies whose commercial
paper is rated Prime-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
S&P and dollar-denominated obligations of foreign issuers issued in the U.S. If
the issuer's commercial paper is unrated, then the debt security would have to
be rated at least AA by S&P or Aa2 by Moody's. If there is neither a commercial
paper rating nor a rating of the debt security, then the Advisor must determine
that the debt security is of comparable quality to equivalent issues of the same
issuer rated at least AA or Aa2.
4. BANK OBLIGATIONS - Obligations of U.S. banks and savings and loan
associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including
marketable variable rate certificates of deposit) and bankers' acceptances.
Bank certificates of deposit will only be acquired from banks having assets
in excess of $1,000,000,000.
5. COMMERCIAL PAPER - Rated, at the time of purchase, A-1 or better by
S&P or Prime-1 by Moody's, or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated Aaa by Moody's or AAA by S&P, and having
a maximum maturity of nine months.
6. REPURCHASE AGREEMENTS - Instruments through which the Portfolios
purchase securities ("underlying securities") from a bank, or a registered U.S.
government securities dealer, with an agreement by the seller to repurchase the
security at an agreed price, plus interest at a specified rate. The underlying
securities will be limited to U.S. government and agency obligations described
in (1) and (2) above. The Portfolios will not enter into a repurchase agreement
with a duration of more than seven days if, as a result, more than 10% of the
value of the Portfolio's total assets would be so invested. The Portfolios will
also only invest in repurchase agreements with a bank if the bank has at least
$1,000,000,000 in assets and is approved by the Investment Committee of the
Advisor. The Advisor will monitor the market value of the securities plus any
accrued interest thereon so that they will at least equal the repurchase price.
7. FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS - Bills, notes, bonds and
other debt securities issued or guaranteed by foreign governments, or their
agencies and instrumentalities.
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8. SUPRANATIONAL ORGANIZATION OBLIGATIONS - Debt securities of
supranational organizations such as the European Coal and Steel Community,
the European Economic Community and the World Bank, which are chartered to
promote economic development.
9. FOREIGN ISSUER OBLIGATIONS - Debt securities of non U.S. issuers
rated AA or better by S&P and Aa2 or better by Moody's.
10. EURODOLLAR OBLIGATIONS - Debt securities of domestic or foreign
issuers denominated in U.S. dollars but not trading in the United States.
Investors should be aware that the net asset values of the Fixed Income
Portfolios may change as general levels of interest rates fluctuate. When
interest rates increase, the value of a portfolio of fixed-income securities can
be expected to decline. Conversely, when interest rates decline, the value of a
portfolio of fixed-income securities can be expected to increase.
INVESTMENTS IN THE BANKING INDUSTRY
The One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series
and Two-Year Global Fixed Income Series will invest more than 25% of their
total respective assets in obligations of U.S. and/or foreign banks and bank
holding companies when the yield to maturity on these investments exceeds the
yield to maturity on all other eligible portfolio investments for a period of
five consecutive days when the NYSE is open for trading. For the purpose of
this policy, which is a fundamental policy of each Series and can only be
changed by a vote of the shareholders of each Series, banks and bank holding
companies are considered to constitute a single industry, the banking
industry. The DFA One-Year Fixed Income Portfolio, DFA Two-Year Corporate
Fixed Income Portfolio and DFA Two-Year Global Fixed Income Portfolio each
have the same fundamental policy, which can only be changed by a vote of each
Portfolio's shareholders, except that the policy of each Portfolio does not
apply to the extent that all or substantially all of its assets are invested
in its respective Series. When investment in such obligations exceeds 25% of
the total net assets of any of these Series, such Series will be considered
to be concentrating its investments in the banking industry. As of the date
of this prospectus, the One-Year Fixed Income Series is not concentrating its
investment in this industry.
The types of bank and bank holding company obligations in which the
One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series and DFA
Two-Year Global Fixed Income Series may invest include: dollar-denominated
certificates of deposit, bankers' acceptances, commercial paper and other
debt obligations issued in the United States and which mature within two
years of the date of settlement, provided such obligations meet each Series'
established credit rating criteria as stated under "Description of
Investments." In addition, all three Series are authorized to invest more
than 25% of their total assets in Treasury bonds, bills and notes and
obligations of federal agencies and instrumentalities.
PORTFOLIO STRATEGY
The One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series
and Two-Year Global Fixed Income Series will be managed with a view to
capturing credit risk premiums and term or maturity premiums. As used
herein, the term "credit risk premium" means the anticipated incremental
return on investment for holding obligations considered to have greater
credit risk than direct obligations of the U.S. Treasury, and "maturity risk
premium" means the anticipated incremental return for holding securities
having maturities of longer than one month compared to securities having a
maturity of one month. The Advisor believes that credit risk premiums are
available largely through investment in high grade commercial paper,
certificates of deposit and corporate obligations. The holding period for
assets of the Series will be chosen with a view to maximizing anticipated
monthly returns, net of trading costs.
The One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series,
Two-Year Government Series, Two-Year Global Fixed Income Series and DFA
Five-Year Government Portfolio are expected to have high portfolio turnover
rates due to the relatively short maturities of the securities to be
acquired. The rate of portfolio turnover will depend upon market and other
conditions; it will not be a limiting factor when management believes that
portfolio changes are appropriate. It is anticipated that the annual
turnover rate of the Two-Year Corporate Fixed Income Series and Two-Year
Global Fixed Income Series, respectively, could be 0% to 200% and Two-Year
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Government Series could be 100% to 500%. While the Fixed Income Portfolios,
the One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series,
Two-Year Global Fixed Income Series and Two-Year Government Series acquire
securities in principal transactions and, therefore, do not pay brokerage
commissions, the spread between the bid and asked prices of a security may be
considered to be a "cost" of trading. Such costs ordinarily increase with
trading activity. However, as stated above, securities ordinarily will be
sold when, in the Advisor's judgment, the monthly return of a Portfolio, the
One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series,
Two-Year Government Series or the Two-Year Fixed Income Series will be
increased as a result of portfolio transactions after taking into account the
cost of trading. It is anticipated that securities will be acquired in the
secondary markets for short term instruments.
The DFA Global Fixed Income Portfolio will be managed with a view to
capturing maturity risk premiums. Ordinarily the Portfolio will invest
primarily in obligations issued or guaranteed by foreign governments and
their agencies and instrumentalities, obligations of other foreign issuers
rated AA or better and supranational organizations. Supranational issuers
include the European Economic Community, the European Coal and Steel
Community, the Nordic Investment Bank, the World Bank and the Japanese
Development Bank. The Portfolio will own obligations issued or guaranteed by
the U.S. government and its agencies and instrumentalities also. At times
when, in the Advisor's judgement, eligible foreign securities do not offer
maturity risk premiums that compare favorably with those offered by eligible
U.S. securities, the Portfolio will be invested primarily in the latter
securities.
The DFA Global Fixed Income Portfolio is "non-diversified," as defined in
the Investment Company Act of 1940, which means that, as to 75% of its total
assets, more than 5% may be invested in the securities of a single issuer.
However, for purposes of the Internal Revenue Code, the Portfolio is
"diversified" because as to 50% of its total assets, no more than 5% may be
invested in the securities of a single issuer. The Portfolio will not invest
more than 25% of its assets in securities of companies in any one industry.
Management does not consider securities which are issued by the U.S.
government or its agencies or instrumentalities to be investments in an
"industry." However, management currently considers securities issued by a
foreign government to be subject to the 25% limitation, with the effect that
not more than 25% of the Portfolio's total assets will be invested in
securities issued by any one foreign government. The Portfolio will not
invest more than 25% of its total assets in obligations of supranational
organizations. Finally, the Portfolio might invest in certain securities
issued by companies, such as Caisse Nationale des Telecommunication, a
communications company, whose obligations are guaranteed by a foreign
government. Management considers such a company to be within a particular
industry (in this case, the communications industry) and, therefore, the
Portfolio will invest in the securities of such a company only if it can do
so under the Portfolio's policy of not being concentrated in any single
industry.
RISK FACTORS - ALL PORTFOLIOS
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than securities
of large companies. Recognizing this factor, management will endeavor to
effect securities transactions in a manner to avoid causing significant price
fluctuations in the market for these securities.
FOREIGN SECURITIES
The International Equity Portfolios, International Value Series, DFA
Global Fixed Income Portfolio, One-Year Fixed Income Series, Two-Year
Corporate Fixed Income Series, Two-Year Global Fixed Income Series and
Enhanced U.S. Large Company Series (directly or indirectly through their
investment in the Trust Series) invest in foreign issuers. Such investments
involve risks that are not associated with investments in U.S. public
companies. Such risks may include legal, political and or diplomatic actions
of foreign governments, such as imposition of withholding taxes on interest
and dividend income payable on the securities held, possible seizure or
nationalization of foreign deposits, establishment of exchange controls or
the adoption of other foreign governmental restrictions which might adversely
affect the value of the assets held by the Portfolios and the Series.
Further, foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those of U.S. public
companies, and there may be less publicly available information about such
companies than
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comparable U.S. companies. The One-Year Fixed Income Series, Two-Year
Corporate Fixed Income Series, Two-Year Global Fixed Income Series, Enhanced
U.S. Large Company Series and the Intermediate Government Fixed Income and
Global Fixed Income Portfolios may invest in obligations of supranational
organizations. The value of the obligations of these organizations may be
adversely affected if one or more of their supporting governments discontinue
their support. Also, there can be no assurance that any of the Portfolios
will achieve its investment objective.
INVESTING IN EMERGING MARKETS
The investments of the Emerging Markets Series and the Emerging Markets
Small Cap Series involve risks in addition to the usual risks of investing in
developed foreign markets. A number of emerging securities markets restrict,
to varying degrees, foreign investment in stocks. Repatriation of investment
income, capital and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging countries. In
some jurisdictions, such restrictions and the imposition of taxes are
intended to discourage shorter rather than longer-term holdings. While the
Emerging Markets Series and the Emerging Markets Small Cap Series will invest
only in markets where these restrictions are considered acceptable to the
Advisor, new or additional repatriation restrictions might be imposed
subsequent to a Series' investment. If such restrictions were imposed
subsequent to investment in the securities of a particular country, a Series
might, among other things, discontinue the purchasing of securities in that
country. Such restrictions will be considered in relation to the Series'
liquidity needs and other factors and may make it particularly difficult to
establish the fair market value of particular securities from time to time.
The valuation of securities held by a Series is the responsibility of the
Trust's Board of Trustees, acting in good faith and with advice from the
Advisor. (See "VALUATION OF SHARES.") Further, some attractive equity
securities may not be available to the Series because foreign shareholders
hold the maximum amount permissible under current laws.
Relative to the U.S. and to larger non-U.S. markets, many of the emerging
securities markets in which the Emerging Markets Series and the Emerging
Markets Small Cap Series may invest are relatively small, have low trading
volumes, suffer periods of illiquidity and are characterized by significant
price volatility. Such factors may be even more pronounced in jurisdictions
where securities ownership is divided into separate classes for domestic and
non-domestic owners. These risks are heightened for investments in small
company emerging markets securities.
In addition, many emerging markets, including most Latin American
countries, have experienced substantial, and, in some periods, extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on
the economies and securities markets of certain countries. In an attempt to
control inflation, wage and price controls have been imposed at times in
certain countries. Certain emerging markets have recently transitioned, or
are in the process of transitioning, from centrally controlled to
market-based economies. There can be no assurance that such transitions will
be successful.
Brokerage commissions, custodial services and other costs relating to
investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such
markets have different settlement and clearance procedures. In certain
markets there have been times when settlements do not keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of a Series to make intended securities
purchases due to settlement problems could cause the Series to miss
investment opportunities. Inability to dispose of a portfolio security
caused by settlement problems could result either in losses to a Series due
to subsequent declines in value of the portfolio security or, if the Series
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may
be substantially curtailed and prices for a Series' portfolio securities in
such markets may not be readily available. The Series' portfolio securities
in the affected markets will be valued at fair value determined in good faith
by or under the direction of the Board of Trustees.
Government involvement in the private sector varies in degrees among the
emerging securities markets contemplated for investment by each Series. Such
involvement may, in some cases, include government ownership of companies in
certain commercial business sectors, wage and price controls or imposition of
trade barriers and
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other protectionist measures. With respect to any developing country, there
is no guarantee that some future economic or political crisis will not lead
to price controls, forced mergers of companies, expropriation, the creation
of government monopolies, or other measures which could be detrimental to the
investments of a Series.
Taxation of dividends and capital gains received by non-residents varies
among countries with emerging markets and, in some cases, is high in relation
to comparable U.S. rates. Particular tax structures may have the intended or
incidental effect of encouraging long holding periods for particular
securities and/or the reinvestment of earnings and sales proceeds in the same
jurisdiction. In addition, emerging market jurisdictions typically have less
well-defined tax laws and procedures than is the case in the United States,
and such laws may permit retroactive taxation so that the Emerging Markets
Series and the Emerging Markets Small Cap Series could in the future become
subject to local tax liability that it had not reasonably anticipated in
conducting its investment activities or valuing its assets.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the International Equity Portfolios (directly or
indirectly through their investment in the Trust Series) and DFA Global Fixed
Income Portfolio, many of the investments of the Two-Year Global Fixed Income
Series and, to a lesser extent, the investment in the Enhanced U.S. Large
Company Series, will be denominated in foreign currencies. Changes in the
relative values of foreign currencies and the U.S. dollar, therefore, will
affect the value of investments of these Portfolios and Series. These
Portfolios and Series may purchase foreign currency futures contracts and
options thereon in order to hedge against changes in the level of foreign
currency exchange rates. Such contracts involve an agreement to purchase or
sell a specific currency at a future date at a price set in the contract and
enable the Portfolios and Series to protect against losses resulting from
adverse changes in the relationship between the U.S. dollar and foreign
currencies occurring between the trade and settlement dates of Portfolio and
Series securities transactions, but they also tend to limit the potential
gains that might result from a positive change in such currency
relationships. Gains and losses on investments in futures and options
thereon depend on the direction of securities prices, interest rates and
other economic factors.
BORROWING
Each Portfolio and each corresponding Series of the Trust, except U.S.
9-10 and Japanese Small Company Portfolios, DFA One-Year Fixed Income
Portfolio, DFA Five-Year Government Portfolio and DFA Intermediate Government
Fixed Income Portfolio, have reserved the right to borrow amounts not
exceeding 33% of its net assets for the purposes of making redemption
payments. When advantageous opportunities to do so exist, each Portfolio and
each Series may purchase securities when borrowings exceed 5% of the value of
its net assets. Such purchases can be considered to be "leveraging" and, in
such circumstances, the net asset value of the Portfolio or Series may
increase or decrease at a greater rate than would be the case if the
Portfolio or Series had not leveraged. The interest payable on the amount
borrowed would increase the Portfolio's or Series' expenses and, if the
appreciation and income produced by the investments purchased when the
Portfolio or Series has borrowed are less than the cost of borrowing, the
investment performance of the Portfolio will be reduced as a result of
leveraging.
PORTFOLIO STRATEGIES
The method employed by the Advisor to manage the Domestic and
International Equity Portfolios (except U.S. Large Company Portfolio and
Enhanced U.S. Large Company Portfolio and their corresponding Series) and, in
respect of those that are Feeder Portfolios, the corresponding Series of the
Trust, will differ from the process employed by many other investment
advisors in that the Advisor will rely on fundamental analysis of the
investment merits of securities to a limited extent to eliminate potential
portfolio acquisitions rather than rely on this technique to select
securities. Further, because securities generally will be held long-term and
will not be eliminated based on short-term price fluctuations, the Advisor
generally will not act upon general market movements or short-term price
fluctuations of securities to as great an extent as many other investment
advisors. U.S. Large Company Series will operate as an index fund and,
therefore, represents a passive method of investing in all stocks that
comprise the S&P 500 Index which does not entail selection of securities
based on the individual investment merits of their issuers. The investment
performance of the U.S. Large Company Series and the corresponding Portfolio
is expected to approximate the investment performance of the S&P 500 Index,
which tends to be cyclical in nature, reflecting periods when stock prices
generally rise or fall.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES
U.S. Large Company Series, Enhanced U.S. Large Company Series, Large Cap
International Portfolio, the Value Series, DFA Real Estate Securities
Portfolio, the International Value Series, the Emerging Markets Series, the
Emerging Markets Small Cap Series and the DFA International Small Cap Value
Portfolio may invest in index futures contracts and options on index futures.
To the extent that such Series or Portfolios invest in futures contracts and
options thereon for other than bona fide hedging purposes, no Series or
Portfolio will enter into such transactions if, immediately thereafter, the
sum of the amount of initial margin deposits and premiums paid for open
futures options would exceed 5% of the Series' or Portfolio's total assets,
after taking into account unrealized profits and unrealized losses on such
contracts it has entered into; provided, however, that, in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. Certain index futures contracts and
options on index futures may be considered to be derivative securities.
These investments entail the risk that an imperfect correlation may exist
between changes in the market value of the stocks owned by the Portfolio or
Series and the prices of such futures contracts and options, and, at times,
the market for such contracts and options might lack liquidity, thereby
inhibiting a Portfolio's or Series' ability to close a position in such
investments. Gains or losses on investments in options and futures depend on
the direction of securities prices, interest rates and other economic
factors, and the loss from investing in futures transactions is potentially
unlimited. Certain restrictions imposed by the Internal Revenue Code may
limit the ability of a Portfolio or Series to invest in futures contracts and
options on futures contracts.
OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase put and call options
and write put and call options on stock indices and stock index futures
listed on national securities exchanges or traded in the over-the-counter
market. The Enhanced U.S. Large Company Series may use these techniques to
hedge against changes in securities prices or as part of its overall
investment strategy. An option on an index is a contract that gives the
holder of the option, in return for a premium, the right to buy from (in the
case of a call) or sell to (in the case of a put) the writer of the option
the cash value of the index at a specified exercise price at any time during
the term of the option. Upon exercise, the writer of an option on an index
is obligated to pay the difference between the cash value of the index and
the exercise price multiplied by the specified multiplier for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.) A stock index fluctuates with
changes in the market values of the stocks included in the index. Certain
put and call options on stock indices and stock index futures may be
considered to be derivative securities.
With respect to the writing of options, the writer has no control over
the time when it may be required to fulfill its obligation. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option on the same series. There can be no assurance, however,
that a closing purchase or sale transaction can be effected when the Enhanced
U.S. Large Company Series desires.
The Enhanced U.S. Large Company Series may write covered straddles
consisting of a combination of a call and a put written on the same index. A
straddle will be covered when sufficient assets are deposited to meet the
Enhanced U.S. Large Company Series' immediate obligations. The Series may
use the same liquid assets to cover both the call and put options where the
exercise price of the call and the put are the same or the exercise price of
the call is higher than that of the put. In such cases, the Series will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Enhanced U.S. Large Company Series'
portfolio correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Series
will realize a gain or loss from the purchase of options on an index depends
upon movements in the level of stock prices in the stock market generally or,
in the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. If the Enhanced U.S. Large
Company Series takes positions in options instruments contrary to prevailing
market trends, the Series could be
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exposed to the risk of a loss. Certain restrictions imposed on the Enhanced
U.S. Large Company Series by the Internal Revenue Code may limit the ability
of such Series to invest in options.
SWAPS
The Enhanced U.S. Large Company Series may enter into equity index swap
agreements for purposes of attempting to obtain a particular desired return
at a lower cost to the Series than if the Series had invested directly in an
instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods
ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments
or instruments. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested a
group of securities representing a particular index. Swap agreements are
considered to be derivative securities.
The "notional amount" of the swap agreement is only a fictive basis on
which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Enhanced U.S.
Large Company Series would calculate the obligations of the parties to the
agreement on a "net basis." Consequently, the Series' current obligations
(or rights) under a swap agreement will generally be equal only to the net
amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net
amount"). The Enhanced U.S. Large Company Series' current obligations under
a swap agreement will be accrued daily (offset against amounts owed to the
Series) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of
liquid assets to avoid any potential leveraging of the Series' portfolio.
The Enhanced U.S. Large Company Series will not enter into a swap agreement
with any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Series' assets.
Because they are two-party contracts and because they may have terms of
greater than seven days, swap agreements may be considered to be illiquid
and, therefore, swap agreements entered into by the Enhanced U.S. Large
Company Series and other illiquid securities will be limited to 15% of the
net assets of the Series. Moreover, the Enhanced U.S. Large Company Series
bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The Advisor will cause the Enhanced U.S. Large Company Series
to enter into swap agreements only with counterparties that the Investment
Committee of the Advisor has approved. Certain restrictions imposed on the
Enhanced U.S. Large Company Series by the Internal Revenue Code may limit the
Series' ability to use swap agreements. The swap market is a relatively new
market and is largely unregulated. It is possible that developments in the
swaps market, including potential government regulation, could adversely
affect the Enhanced U.S. Large Company Series' ability to terminate existing
swap agreements or to realize amounts to be received under such agreements.
BANKING INDUSTRY AND REAL ESTATE CONCENTRATIONS
Concentrating in obligations of the banking industry may involve
additional risk by foregoing the safety of investing in a variety of
industries. Changes in the market's perception of the riskiness of banks
relative to non-banks could cause more fluctuations in the net asset value of
the One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series and
Two-Year Global Fixed Income Series (and, thus, DFA One-Year Fixed Income
Portfolio, DFA Two-Year Corporate Fixed Income Portfolio and DFA Two-Year
Global Fixed Income Portfolio) than might occur in less concentrated
portfolios.
The DFA Real Estate Securities Portfolio intends to concentrate its
investments in the real estate industry. Concentrating investments in the
real estate industry involves the risk of foregoing the safety of investing
in a variety of industries. Further, while the Portfolio will not invest in
real estate directly, but only in securities issued by real estate companies,
the Portfolio may be subject to certain risks that are similar to those
associated with the direct ownership of real estate in addition to securities
markets risks. These include declines in the value of real estate, risks
related to general and local economic conditions, heavy cash flow dependency,
possible lack of availability of mortgage funds, overbuilding, extended
periods of high vacancy rates, increases in property taxes and operating
expenses, changes in zoning laws, losses due to costs resulting from the
clean-up of environmental
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hazards, liability to third parties for damages resulting from environmental
hazards, casualty or condemnation losses, limitations on rents, and changes
in neighborhood values, interest rates and the credit quality of tenants.
Also, in deciding whether to purchase securities of a particular real estate
company, including REITS, the Advisor does not consider the geographic
location within the United States of the underlying assets of such company.
Therefore, to the extent that the Portfolio may become substantially invested
in real estate companies, including REITS, whose underlying assets are
located in one particular region of the United States and subsequently a
decline in real estate values occurs in that region, the value of such real
estate companies may be adversely affected and the Portfolio's net asset
value may in turn be similarly affected.
REPURCHASE AGREEMENTS
In addition, all of the Portfolios and the Series of the Trust may invest
in repurchase agreements. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund or the Trust could experience delay in
recovering the securities underlying such agreements. Management believes
that this risk can be controlled through stringent security selection
criteria and careful monitoring procedures.
MANAGEMENT OF THE FUND
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment
advisor to each of the Portfolios, except the Feeder Portfolios, and each
Series of the Trust. As such, the Advisor is responsible for the management
of their respective assets. Investment decisions for all Portfolios of the
Fund and all Series of the Trust are made by the Investment Committee of the
Advisor which meets on a regular basis and also as needed to consider
investment issues. The Investment Committee is composed of certain officers
and directors of the Advisor who are elected annually. The Advisor provides
the Portfolios (except the Feeder Portfolios and International Small Company
Portfolio) and the Series with a trading department and selects brokers and
dealers to effect securities transactions. Portfolio securities transactions
are placed with a view to obtaining best price and execution and, subject to
this goal, may be placed with brokers which have assisted in the sale of the
Portfolios' shares.
For the fiscal year ended November 30, 1995, (i) the Advisor (including a
sub-advisor in respect of DFA Real Estate Securities Portfolio) received a
fee for its services from the Fund or the Trust which, on an annual basis,
equaled the following percentage of the average net assets of each Portfolio
or, in the case of a Feeder Portfolio, the average net assets of its
corresponding Trust Series; and (ii) the total expenses of each Portfolio
were the following percentages of respective average net assets:
PORTFOLIO MANAGEMENT FEE TOTAL EXPENSES
U.S. 9-10 Small Company 0.50% 0.62%
U.S. 6-10 Small Company 0.03% 0.49%
U.S. Large Company 0.025% 0.24%
U.S. Small Cap Value 0.20% 0.64%
U.S. Large Cap Value 0.10% 0.42%
DFA Real Estate Securities(1) 0.50% 0.82%
Japanese Small Company(2) 0.50% 0.74%
Pacific Rim Small Company(2) 0.50% 0.83%
United Kingdom Small Company(2) 0.50% 0.72%
Emerging Markets 0.10% 1.58%
Continental Small Company(2) 0.50% 0.74%
Large Cap International 0.25% 0.57%
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RWB/DFA International High Book to Market 0.20% 0.68%
DFA International Small Cap Value(3) 0.65% 1.23%
DFA One-Year Fixed Income 0.05% 0.20%
DFA Five-Year Government 0.20% 0.28%
DFA Global Fixed Income 0.25% 0.46%
DFA Intermediate Government Fixed Income 0.15% 0.27%
- ------------------------
(1) Effective December 20, 1996, the investment advisory fee payable by the
Fund on behalf of the DFA Real Estate Securities Portfolio to the Advisor
was reduced from .325% to .30% of the average net assets of the Portfolio
on an annual basis. Effective December 11, 1996, the sub-advisory agreement
between the Fund, on behalf of the Portfolio, and AEW terminated; pursuant
to the terms of the sub-advisory agreement, the Portfolio paid AEW a fee
equal to .175% of its average net assets on an annual basis.
(2) Prior to August 9, 1996, the Fund, on behalf of the Portfolio, had an
investment management agreement with the Advisor; the dollar amount
represents the total dollar amount of management fees paid by the Portfolio
to the Advisor for the fiscal year ended November 30, 1995.
(3) Annualized, based on fees and expenses incurred from December 30, 1994
(commencement of operations) to November 30, 1995.
For the new Trust Series, the investment management fees, calculated as a
percentage of the average net assets of the Series on an annual basis, are:
Enhanced U.S. Large Company Series - .05%; Two-Year Global Fixed Income
Series -.05%; Two-Year Corporate Fixed Income Series - .15%; Two-Year
Government Series - .15%; and Emerging Markets Small Cap Series - .20%.
The Advisor provides asset allocation advice with respect to the
Underlying Series to the International Small Company Portfolio without charge
pursuant to a written agreement. The investment management fees applicable
to each Underlying Series are equal to 0.10% of the average net assets of the
Series on an annual basis. The International Small Company Portfolio, as a
shareholder of each Underlying Series, benefits from the investment
management services provided by the Advisor to each of the Underlying Series,
and indirectly bears its proportionate share of the investment management
fees paid by such Series.
For the fiscal year ended November 30, 1995, the Advisor agreed to bear
all of the ordinary operating expenses of U.S. Large Company Portfolio and
its corresponding Series, except the investment advisory fee of the Series
and the administration fee of the Portfolio. Such expenses were not subject
to reimbursement by the Series and the Portfolio. Absent this arrangement,
the annualized ratio of expenses to average net assets for U.S. Large Company
Portfolio for the fiscal year ended November 30, 1995 would have been .46%.
Pursuant to the terms of the current administration agreement between U.S.
Large Company Portfolio and the Advisor, the Advisor has agreed to waive a
portion of its administration fee and/or assume the expenses of the Portfolio
to the extent (1) necessary to pay the ordinary operating expenses of the
Portfolio (except the administration fee); and (2) that the indirect expenses
the Portfolio bears as a shareholder of the Series, on an annual basis,
exceed 0.025% of the Portfolio's average net assets. Beginning August 9,
1996, in addition to the waiver/assumption effective on December 1, 1995, the
Advisor has agreed to assume expenses or waive the fee payable by the U.S.
Large Company Portfolio under the administration agreement by an additional
.09% of average assets on an annual basis.
From December 1, 1993 through August 8, 1996, the Advisor agreed to waive
its fee under the Investment Management Agreement with respect to DFA
International Value Series to the extent necessary to keep the cumulative
annual expenses of the Series to not more than 0.45% of average net assets of
the Series on an annualized basis. For the fiscal year ended November 30,
1995, the Advisor was not required to waive any portion of its fee pursuant
to such agreement.
Effective August 9, 1996, the Advisor has agreed to waive its
administration fee and assume the direct expenses of the Japanese Small
Company, United Kingdom Small Company, Continental Small Company and Pacific
Rim Small Company Portfolios to the extent necessary to keep the direct
annual expenses of each Portfolio to not more than 0.47% of average net
assets of the Portfolio on an annualized basis; this arrangement does not
extend to the fees and expenses of the Trust Series.
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The Advisor has agreed to waive its administration fee and assume the
direct expenses of the International Small Company Portfolio to the extent
necessary to keep the administration fee and direct annual expenses of the
Portfolio to not more than 0.45% of average net assets of the Portfolio on an
annualized basis; this arrangement does not extend to the fees and expenses
of the Underlying Series.
For purposes of waivers and/or expense assumptions, the annual expenses
are those expenses incurred in any period consisting of twelve consecutive
months. The Advisor retains the right in its sole discretion to modify or
eliminate the waiver of a portion of its fees or assumption of expenses in
the future.
The Fund and the Trust each bears all of its own costs and expenses,
including: services of its independent accountants, legal counsel, brokerage
fees, commissions and transfer taxes in connection with the acquisition and
disposition of portfolio securities, taxes, insurance premiums, costs
incidental to meetings of its shareholders and directors or trustees, the
cost of filing its registration statements under the federal securities laws
and the cost of any filings required under the state securities laws, reports
to shareholders, and transfer and dividend disbursing agency, administrative
services and custodian fees, except as described above with respect to the
U.S. Large Company Portfolio. Expenses allocable to a particular Portfolio
or Series are so allocated, and expenses which are not allocable to a
particular Portfolio or Series are borne by each Portfolio or Series on the
basis of the fees paid by the Fund or Trust to PFPC Inc., the accounting
services, dividend disbursing and transfer agent for all Fund Portfolios and
the Series of the Trust.
The Advisor was organized in May 1981 and is engaged in the business of
providing investment management services to institutional investors. Assets
under management total approximately $18.9 billion. David G. Booth and Rex
A. Sinquefield, directors and officers of both the Fund and the Advisor and
trustees and officers of the Trust, and shareholders of the Advisor's
outstanding stock, may be deemed controlling persons of the Advisor. The
Advisor owns 100% of the outstanding shares of Dimensional Fund Advisors Ltd.
("DFAL") (see "Investment Services - United Kingdom and Continental Small
Company Series") and DFA Australia Pty Limited ("DFA Australia") (see
"Investment Services - Japanese and Pacific Rim Small Company Series").
INVESTMENT SERVICES - UNITED KINGDOM AND CONTINENTAL SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, DFAL, 14 Berkeley
Street, London, W1X 5AD, England, a company that is organized under the laws
of England, has the authority and responsibility to select brokers or dealers
to execute securities transactions for United Kingdom and Continental Small
Company Series. DFAL's duties include the maintenance of a trading desk for
the Series and the determination of the best and most efficient means of
executing securities transactions. On at least a semi-annual basis the
Advisor reviews the holdings of United Kingdom and Continental Small Company
Series and reviews the trading process and the execution of securities
transactions. The Advisor is responsible for determining those securities
which are eligible for purchase and sale by these Series and may delegate
this task, subject to its own review, to DFAL. DFAL maintains and furnishes
to the Advisor information and reports on United Kingdom and European small
companies, including its recommendations of securities to be added to the
securities that are eligible for purchase by the Series. The Advisor pays
DFAL quarterly fees of 12,500 pounds sterling for services to each Series.
DFAL is a member of the Investment Management Regulatory Organization Limited
("IMRO"), a self regulatory organization for investment managers operating
under the laws of England.
INVESTMENT SERVICES - JAPANESE AND PACIFIC RIM SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, DFA Australia,
Suite 4403 Gateway, 1 MacQuarie Place, Sydney, New South Wales 2000,
Australia, the successor to Dimensional Fund Advisors Asia Inc., has the
authority and responsibility to select brokers and dealers to execute
securities transactions for Japanese and Pacific Rim Small Company Series.
DFA Australia's duties include the maintenance of a trading desk for each
Series and the determination of the best and most efficient means of
executing securities transactions. On at least a semi-annual basis, the
Advisor reviews the holdings of Japanese and Pacific Rim Small Company Series
and reviews the trading process and the execution of securities transactions.
The Advisor is responsible for determining those securities which are
eligible for purchase and sale by these Series and may delegate this task,
subject to its own review, to DFA Australia. DFA Australia maintains and
furnishes to the Advisor information and reports on Japanese and Pacific Rim
small companies, including its recommendations of securities to be added to
the
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securities that are eligible for purchase by each Series. The Advisor pays
DFA Australia quarterly fees of 25,000 Hong Kong dollars for services to each
Series.
ADMINISTRATIVE SERVICES - THE FEEDER PORTFOLIOS AND INTERNATIONAL SMALL
COMPANY PORTFOLIO
The Fund has entered into an administration agreement with the Advisor,
on behalf of each Feeder Portfolio and International Small Company Portfolio.
Pursuant to each administration agreement, the Advisor performs various
services, including: supervision of the services provided by the Portfolio's
custodian and transfer and dividend disbursing agent and others who provide
services to the Fund for the benefit of the Portfolio; providing shareholders
with information about the Portfolio and their investments as they or the
Fund may request; assisting the Portfolio in conducting meetings of
shareholders; furnishing information as the Board of Directors may require
regarding the corresponding Series; and any other administrative services for
the benefit of the Portfolio as the Board of Directors may reasonably
request. For its administrative services, the Feeder Portfolios and
International Small Company Portfolio pay the Advisor a monthly fee equal to
one-twelfth of the percentages listed below:
U.S. 6-10 Small Company .32%
U.S. Large Company .125%*
Enhanced U.S. Large Company .15%
U.S. Small Cap Value .30%
U.S. Large Cap Value .15%
RWB/DFA International High Book to Market .01%
Japanese Small Company .40%**
Pacific Rim Small Company .40%**
United Kingdom Small Company .40%**
Continental Small Company .40%**
International Small Company .40%***
Emerging Markets .40%
Emerging Markets Small Cap .45%
DFA One-Year Fixed Income .10%
DFA Two-Year Corporate Fixed Income .05%
DFA Two-Year Global Fixed Income .10%
DFA Two-Year Government .05%
- --------------------------------
* Pursuant to the terms of the administration agreement between U.S.
Large Company Portfolio and the Advisor, the Advisor has agreed to
waive a portion of its administration fee and/or assume the expenses
of the Portfolio to the extent (1) necessary to pay the ordinary
operating expenses of the Portfolio (except the administration fee);
and (2) that the direct expenses the Portfolio bears as a shareholder
of the Series, on an annual basis, exceeds 0.025% of the Portfolio's
average net assets. Beginning August 9, 1996, in addition to the
waiver/assumption effective on December 1, 1995, the Advisor has
agreed to assume expenses or waive the fee payable by the U.S. Large
Company Portfolio under the administration agreement by an additional
.09% of average assets on an annual basis. The above fees reflect
that waiver.
** Effective August 9, 1996, the Advisor has agreed to waive its
administration fee and assume the direct expenses of the Japanese
Small Company, United Kingdom Small Company, Continental Small Company
and Pacific Rim Small Company Portfolios to the extent necessary to
keep the direct annual expenses of each Portfolio to not more than
0.47% of average net assets of the Portfolio on an annualized basis;
this arrangement does not extend to the fees and expenses of the Trust
Series.
*** The Advisor has agreed to waive its administration fee and assume the
direct expenses of the International Small Company Portfolio to the
extent necessary to keep the administration fee and direct annual
expenses of the Portfolio to not more than 0.45% of average net assets
of the Portfolio on an annualized basis.
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CLIENT SERVICE AGENT - RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO
Pursuant to a Client Service Agent Agreement, Reinhardt Werba Bowen
Advisory Services, San Jose, CA ("RWBAS") performs various services for the
RWB/DFA International High Book to Market Portfolio, including:
establishment of a toll-free telephone number for shareholders of the
Portfolio to use to obtain or receive up-to-date account information;
providing to shareholders quarterly reports with respect to the performance
of the Portfolio; and providing shareholders with such information regarding
the operation and affairs of the Portfolio, and their investment in its
shares, as the shareholders or the Board of Directors may reasonably request.
Effective February 8, 1996, for its services, the Portfolio pays RWBAS a
monthly fee which, on an annual basis, equals .13% of the average daily net
assets of the Portfolio.
DIRECTORS AND OFFICERS
The Board of Directors is responsible for establishing Fund policies and
for overseeing the management of the Fund. Each of the Directors and
officers of the Fund is also a Trustee and officer of the Trust. The
Directors of the Fund, including all of the disinterested directors, have
adopted written procedures to monitor potential conflicts of interest that
might develop between the Feeder Portfolios and the Trust. Information as to
the Directors and Officers of the Fund and the Trust is set forth in the
Statement of Additional Information under "Directors and Officers."
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each Portfolio of the Fund intends to qualify each year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code") so that it will not be liable for U.S. federal income taxes to the
extent that its net investment income and net realized capital gains are
distributed. The policy of the Domestic and International Equity Portfolios,
except U.S. Large Company Portfolio, Enhanced U.S. Large Company Portfolio
and U.S. Large Cap Value Portfolio, is to distribute substantially all of
their net investment income together with any net realized capital gains in
December of each year. Dividends from net investment income of U.S. Large
Company Portfolio, Enhanced U.S. Large Company Portfolio and U.S. Large Cap
Value Portfolio are distributed quarterly and any net realized capital gains
are distributed annually after November 30. Net investment income, which is
accrued daily, will be distributed monthly (except for January) by DFA
One-Year Fixed Income Portfolio, quarterly by DFA Intermediate Government
Fixed Income, DFA Two-Year Global Fixed Income, DFA Two-Year Corporate Fixed
Income, DFA Two-Year Government and DFA Global Fixed Income Portfolios, and
semi-annually by DFA Five-Year Government Portfolio. Any net realized
capital gains of Fixed Income Portfolios will be distributed annually after
the end of the fiscal year. Each Portfolio of the Fund is treated as a
separate corporation for U.S federal tax purposes.
Shareholders of each of the Portfolios will automatically receive all
income dividends and capital gains distributions in additional shares of the
Portfolio whose shares they hold at net asset value (as of the business date
following the dividend record date), unless as to U.S. 9-10 Small Company
Portfolio, U.S. 6-10 Small Company Portfolio, the Fixed Income Portfolios,
DFA Real Estate Securities Portfolio, U.S. Large Company Portfolio, and the
Value Portfolios upon written notice to the Transfer Agent, the shareholder
selects one of the options listed below. While shareholders of the Enhanced
U.S. Large Company Portfolio will automatically receive all capital gains
distributions in additional shares of the Portfolio, upon written notice to
the Transfer Agent, they may receive all income dividends in cash.
Income Option - to receive income dividends in cash and capital
gains distributions in additional shares at net
asset value.
Capital Gains Option - to receive capital gains distributions in cash and
income dividends in additional shares at net asset
value.
Cash Option - to receive both income dividends and capital gains
distributions in cash.
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U.S. 6-10 Small Company, Enhanced U.S. Large Company, DFA One-Year Fixed
Income, DFA Two-Year Corporate Fixed Income, DFA Two-Year Global Fixed
Income, U.S. Small Cap Value, U.S. Large Cap Value, RWB/DFA International
High Book to Market Portfolios (collectively, the "Corporate Feeder
Portfolios") seek to achieve their investment objectives by investing all of
their investable assets in a corresponding series of shares of the Trust
(collectively, the "Corporate Series"). The Corporate Series intend to
qualify each year as regulated investment companies under the Code.
A Corporate Feeder Portfolio receives income in the form of income
dividends paid by the corresponding Corporate Series. This income, less the
expenses incurred in operations, is a Corporate Feeder Portfolio's net
investment income from which income dividends are distributed as described
above. A Corporate Feeder Portfolio also may receive capital gains
distributions from the corresponding Corporate Series and may realize capital
gains upon the redemption of the shares of the corresponding Corporate
Series. Any net realized capital gains of a Corporate Feeder Portfolio will
be distributed as described above.
The U.S. Large Company, Emerging Markets, Emerging Markets Small Cap, DFA
Two-Year Government, Japanese Small Company, Pacific Rim Small Company,
United Kingdom Small Company, Continental Small Company and International
Small Company Portfolios ("Partnership Portfolios"), seek to achieve their
investment objectives by investing all of their investable assets in a
corresponding Series of shares of the Trust or, in the case of International
Small Company Portfolio, the Underlying Series (collectively, the
"Partnership Series"). Each Partnership Series is classified as a
partnership for U.S. federal income tax purposes. A Partnership Portfolio is
allocated its proportionate share of the income and realized and unrealized
gains and losses of its corresponding Partnership Series.
If a Portfolio, except for the Feeder Portfolios, purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" ("PFIC"), such Portfolio may be subject to U.S. federal income tax
and a related interest charge on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income is distributed
as a taxable dividend by the Portfolio to its shareholders. In the case of a
Corporate Feeder Portfolio, if the corresponding Series purchases shares in
PFICs, such Series may be subject to U.S. federal income tax and a related
interest charge on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the Series to the Corporate Feeder Portfolio.
In the case of a Partnership Portfolio, if the corresponding Series purchases
shares in PFICs, the Partnership Portfolio may be subject to U.S. federal
income tax and a related interest charge on a portion of any "excess
distribution" or gain from the disposition of such shares.
The Portfolios (or, in the case of a Feeder Portfolio or International
Small Company Portfolio, the corresponding Series) may be subject to foreign
withholding taxes on income from certain of their foreign securities. If
more than 50% in value of the total assets of a Portfolio, or in the case of
a Partnership Portfolio (but not a Corporate Feeder Portfolio) its
corresponding Series, are invested in securities of foreign corporations,
such Portfolio may elect to pass-through to its shareholders their pro rata
share of foreign income taxes paid by such Portfolio. If this election is
made, shareholders will be required to include in their gross income their
pro rata share of foreign taxes paid by the Portfolio. However, shareholders
will be entitled to either deduct (as an itemized deduction in the case of
individuals) their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. federal income
tax, subject to certain limitations under the Code.
The Enhanced U.S. Large Company Series' investment in index derivatives
are subject to complex tax rules which may have the effect of accelerating
income or converting, in part, what otherwise would have been long-term
capital gain into short-term capital gain. These rules may effect the
amount, character and timing of income distributed to shareholders of the
Enhanced U.S. Large Company Portfolio.
Since virtually all the net investment income from the Fixed Income
Portfolios is expected to arise from earned interest, it is not expected that
any of those Portfolios' distributions will be eligible for the dividends
received deduction for corporations. Similarly, it is anticipated that
either none or only a small portion of the distributions made by the
International Equity Portfolios will qualify for the corporate dividends
received deduction because of
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such Portfolios' investment in foreign equity securities. In the case of the
other Portfolios, dividends from net investment income will generally qualify
in part for the corporate dividends received deduction, but the portion of
dividends so qualified depends on the aggregate qualifying dividend income
received by the Portfolio from domestic (U.S.) sources.
Whether paid in cash or additional shares and regardless of the length of
time a Portfolio's shares have been owned by shareholders who are subject to
U.S. federal income taxes, distributions from long-term capital gains are
taxable as such. Dividends from net investment income or net short-term
capital gains will be taxable as ordinary income, whether received in cash or
in additional shares. For those investors subject to tax, if purchases of
shares of a Portfolio are made shortly before the record date for a dividend
or capital gains distribution, a portion of the investment will be returned
as a taxable distribution. Shareholders are notified annually by the Fund as
to the U.S. federal tax status of dividends and distributions paid by the
Portfolio whose shares they own.
Dividends which are declared in October, November or December to
shareholders of record in such a month, but which, for operational reasons,
may not be paid to the shareholder until the following January, will be
treated for U.S. federal income tax purposes as if paid by the Portfolio and
received by the shareholder on December 31 of the calendar year in which they
are declared.
The sale of shares of a Portfolio is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss
may be realized from an ordinary redemption of shares or an exchange of
shares between two Portfolios of the Fund. Any loss incurred on sale or
exchange of a Portfolio's shares, held for six months or less, will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital
gains realized from certain types of U.S. government securities may be exempt
from state personal income taxes.
A Portfolio is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on the account registration form your
proper Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning
the federal, state, local or foreign tax consequences of an investment in a
Portfolio.
PURCHASE OF SHARES
Investors may purchase shares of any Portfolio by first contacting the
Advisor at (310) 395-8005 to notify the Advisor of the proposed investment.
All investments are subject to approval of the Advisor, and all investors
must complete and submit the necessary account registration forms. The Fund
reserves the right to reject any initial or additional investment and to
suspend the offering of shares of any Portfolio.
Only clients of RWBAS are eligible to purchase shares of the RWB/DFA
International High Book to Market Portfolio, and any such person should first
contact RWBAS at (800) 366-7266, ext. 124, to notify RWBAS of the proposed
investment.
Investors having an account with a bank that is a member or a
correspondent of a member of the Federal Reserve System may purchase shares
by first calling the Advisor at (310) 395-8005 to notify the Advisor of the
proposed investment, then requesting the bank to transmit immediately
available funds (Federal Funds) by wire to the appropriate Custodian, for the
Account of DFA Investment Dimensions Group Inc. (specify Portfolio).
Additional investments also may be made through the wire procedure by first
notifying the Advisor. Investors who wish to purchase shares of any
Portfolio by check should send their check to DFA Investment Dimensions Group
Inc., c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809. The
Chase Manhattan Bank serves as custodian for each of the Emerging Markets
Series and Portfolio and Emerging Markets Small Cap Series and Portfolio.
Boston Safe Deposit and Trust Company serves as custodian for the following
Portfolios and Series:
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DFA International Small Cap Value Portfolio, Large Cap International
Portfolio, DFA Global Fixed Income Portfolio, DFA International Value Series,
the Underlying Series, International Small Company Portfolio, DFA Two-Year
Global Fixed Income Series, and Enhanced U.S. Large Company Series
(co-custodian with PNC Bank, N.A.). PNC Bank, N.A. serves as custodian for
all other Portfolios and Series.
Shares may also be purchased and sold by individuals through securities
firms which may charge a service fee or commission for such transactions. No
such fee or commission is charged on shares which are purchased or redeemed
directly from the Fund. Investors who are clients of investment advisory
organizations may also be subject to investment advisory fees under their own
arrangements with such organizations.
IN KIND PURCHASES
If accepted by the Fund, shares of the Portfolios may be purchased in
exchange for securities which are eligible for acquisition by the Portfolios
(or their corresponding Series) or otherwise represented in their portfolios
as described in this prospectus or in exchange for local currencies in which
such securities of the International Equity Portfolios, the International
Value Series, Enhanced U.S. Large Company Series, DFA Two-Year Global Fixed
Income Series and DFA Global Fixed Income Portfolio are denominated.
Purchases in exchange for securities will not be subject to a reimbursement
fee. Securities and local currencies to be exchanged which are accepted by
the Fund and Fund shares to be issued therefore will be valued as set forth
under "VALUATION OF SHARES" at the time of the next determination of net
asset value after such acceptance. All dividends, interest, subscription, or
other rights pertaining to such securities shall become the property of the
Portfolio whose shares are being acquired and must be delivered to the Fund
by the investor upon receipt from the issuer. Investors who desire to
purchase shares of the International Equity Portfolios, DFA Two-Year Global
Fixed Income Portfolio or DFA Global Fixed Income Portfolio with local
currencies should first contact the Advisor for wire instructions.
The Fund will not accept securities in exchange for shares of a Portfolio
unless: (1) such securities are, at the time of the exchange, eligible to be
included, or otherwise represented, in the Portfolio whose shares are to be
issued (or in its corresponding Series) and current market quotations are
readily available for such securities; (2) the investor represents and agrees
that all securities offered to be exchanged are not subject to any
restrictions upon their sale by the Portfolio under the Securities Act of
1933 or under the laws of the country in which the principal market for such
securities exists, or otherwise; and (3) at the discretion of the Fund, the
value of any such security (except U.S. Government Securities) being
exchanged together with other securities of the same issuer owned by the
Portfolio or Series may not exceed 5% of the net assets of the Portfolio or
Series immediately after the transaction, however, this last limitation does
not apply to DFA Global Fixed Income Portfolio or the International Small
Company Portfolio. The Fund will accept such securities for investment and
not for resale.
A gain or loss for federal income tax purposes will generally be realized
by investors who are subject to federal taxation upon the exchange depending
upon the cost of the securities or local currency exchanged. Investors
interested in such exchanges should contact the Advisor. Purchases of
shares will be made in full and fractional shares calculated to three decimal
places. In the interest of economy and convenience, certificates for shares
will not be issued.
VALUATION OF SHARES
The net asset value per share of each Portfolio and corresponding Series
is calculated as of the close of the NYSE by dividing the total market value
of the Portfolio's investments and other assets, less any liabilities, by the
total outstanding shares of the stock of the Portfolio or Series. The value
of the shares of each Portfolio will fluctuate in relation to its own
investment experience. The value of the shares of the Feeder Portfolios and
International Small Company Portfolio will fluctuate in relation to the
investment experience of the Trust Series in which such Portfolios invest.
Securities held by the Portfolios and Series which are listed on the
securities exchange and for which market quotations are available are valued
at the last quoted sale price of the day or, if there is no such reported
sale, U.S. 9-10 Small Company Portfolio, the 6-10 Series, the U.S. Large
Company Series, DFA Real Estate Securities Portfolio, the Value Series,
Emerging Markets Series and Emerging Markets Small Cap Series value such
securities at the mean between the most recent quoted bid and asked prices.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Securities issued by open-end investment
companies, such as the Series, are valued using their respective net asset
values for purchase orders placed at the close of the NYSE. Unlisted
securities for which market quotations are readily
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available are valued at the mean between the most recent bid and asked
prices. The value of other assets and securities for which no quotations are
readily available (including restricted securities) are determined in good
faith at fair value in accordance with procedures adopted by the Board of
Directors. The net asset values per share of the International Equity
Portfolios (in respect of those Portfolios that are Feeder Portfolios and
International Small Company Portfolio, the Trust Series), the International
Value Series, Two-Year Global Fixed Income Series and DFA Global Fixed Income
Portfolio are expressed in U.S. dollars by translating the net assets of each
Portfolio or Series using the bid price for the dollar as quoted by generally
recognized reliable sources.
Provided that the Transfer Agent has received the investor's Account
Registration Form in good order and the Custodian has received the investor's
payment, shares of the Portfolio selected will be priced at the public
offering price calculated next after receipt of the investor's funds by the
Custodian. The Transfer Agent or the Fund may from time to time appoint a
sub-transfer agent for the receipt of purchase orders and funds from certain
investors. With respect to such investors, the shares of the Portfolio
selected will be priced at the public offering price calculated after receipt
of the purchase order by the sub-transfer agent. The only difference between
a normal purchase and a purchase through a sub-transfer agent is that if the
investor buys shares through a sub-transfer agent, the purchase price will be
the public offering price next calculated after the sub-transfer agent
receives the order, rather than on the day the Custodian receives the
investor's payment (provided that the Transfer Agent has received the
investor's purchase order in good order). "Good order" with respect to the
purchase of shares means that (1) a fully completed and properly signed
Account Registration Form and any additional supporting legal documentation
required by the Advisor has been received in legible form and (2) the Advisor
has been notified of the purchase by telephone and, if the Advisor so
requests, also in writing, no later than the close of regular trading on the
NYSE (ordinarily 1:00 p.m. PST) on the day of the purchase. If an order to
purchase shares must be canceled due to non-payment, the purchaser will be
responsible for any loss incurred by the Fund arising out of such
cancellation. To recover any such loss, the Fund reserves the right to redeem
shares owned by any purchaser whose order is canceled, and such purchaser may
be prohibited or restricted in the manner of placing further orders.
The value of the shares of The Fixed Income Portfolios, the One-Year
Fixed Income Series, Two-Year Corporate Fixed Income Series, Two-Year
Government Series and Two-Year Global Fixed Income Series will tend to
fluctuate with interest rates because, unlike money market funds, these
Portfolios and the Series do not seek to stabilize the value of their
respective shares by use of the "amortized cost" method of asset valuation.
Net asset value includes interest on fixed income securities which is accrued
daily. Securities which are traded OTC and on a stock exchange will be
valued according to the broadest and most representative market, and it is
expected that for bonds and other fixed-income securities this ordinarily
will be the OTC market. Securities held by The Fixed Income Portfolios, the
One-Year Fixed Income Series, Two-Year Corporate Fixed Income Series,
Two-Year Government Series and Two-Year Global Fixed Income Series may be
valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the current market value of such securities. Other
assets and securities for which quotations are not readily available will be
valued in good faith at fair value using methods determined by the Board of
Directors.
Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign
securities held by those Portfolios and Series that invest in such securities
are determined as of such times for the purpose of computing the net asset
values of the Portfolios and Series. If events which materially affect the
value of the investments of a Portfolio or Series occur subsequent to the
close of the securities market on which such securities are primarily traded,
the investments affected thereby will be valued at "fair value" as described
above.
Certain of the securities holdings of the Emerging Markets Series and
Emerging Markets Small Cap Series in Approved Markets may be subject to tax,
investment and currency repatriation regulations of the Approved Markets that
could have a material effect on the valuation of the securities. For
example, such Series might be subject to different levels of taxation on
current income and realized gains depending upon the holding period of the
securities. In general, a longer holding period (E.G., 5 years) may result
in the imposition of lower tax rates than a shorter holding period (E.G., 1
year). The Series may also be subject to certain contractual arrangements
with investment authorities in an Approved Market which require a Series to
maintain minimum holding periods or to limit the extent of repatriation of
income and realized gains. As a result, the valuation of particular
securities at any one time may depend materially upon the assumptions that a
Series makes at that time concerning the anticipated holding period for the
securities. Absent special circumstances as determined by the Board of
Trustees of the Trust, it is presently intended that the valuation of such
securities will be based upon the assumption that
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they will be held for at least the amount of time necessary to avoid higher
tax rates or penalties and currency repatriation restrictions. However, the
use of such valuation standards will not prevent the Series from selling such
securities in a shorter period of time if the Advisor considers the earlier
sale to be a more prudent course of action. Revision in valuation of those
securities will be made at the time of the transaction to reflect the actual
sales proceeds inuring to the Series.
Futures contracts are valued using the settlement price established each
day on the exchange on which they are traded. The value of such futures
contracts held by a Portfolio or Series are determined each day as of such
close.
PUBLIC OFFERING PRICE
It is management's belief that payment of a reimbursement fee by each
investor, which is used to defray significant costs associated with investing
proceeds of the sale of their shares to such investors, will eliminate a
dilutive effect such costs would otherwise have on the net asset value of
shares held by previous investors. Therefore, the shares of certain
Portfolios are sold at an offering price which is equal to the current net
asset value of such shares plus a reimbursement fee. The amount of the
reimbursement fee represents management's estimate of the costs reasonably
anticipated to be associated with the purchase of securities by those
Portfolios and Series and is paid to the Portfolios and Series and used by
them to defray such costs. Such costs include brokerage commissions on
listed securities, imputed commissions on OTC securities and a .5% Stamp Duty
imposed on the purchase of stocks on the ISE. Reinvestments of dividends and
capital gains distributions paid by the Portfolios and in-kind investments
are not subject to a reimbursement fee. (See "In-Kind Purchases" and
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.") The table below lists
the Portfolios whose shares are sold at an offering price which is equal to
the current net asset value of such shares plus a reimbursement fee. The
reimbursement fee is expressed as a percentage of the net asset value of the
shares of each Portfolio.
PORTFOLIO REIMBURSEMENT FEE
--------- -----------------
Japanese Small Company Portfolio(1) 0.50%
Continental Small Company Portfolio(1) 1.00%
Pacific Rim Small Company Portfolio(1) 1.00%
Emerging Markets Portfolio(1) 0.50%
Emerging Markets Small Cap Portfolio(1) 1.00%
DFA International Small Cap Value Portfolio 0.70%
International Small Company Portfolio(2) 0.675%
- -----------------------------
(1) The Series in which the Portfolio invests also charges a reimbursement
fee equal to that charged by the Portfolio.
(2) The reimbursement fee is equal to a blended rate of the reimbursement
fees of the Underlying Series. The blended rate is determined on a
quarterly basis and is based upon the target allocation in effect at
the end of each quarter. The blended rate will be calculated by
multiplying the rate of reimbursement fee of each Underlying Series by
a fraction equal to the portion of the assets of the Portfolio which,
at such time, is being allocated to each Underlying Series and adding
the results thereof. If there is a change to the reimbursement fee of
an Underlying Series during a quarter, the blended rate will be
re-calculated to reflect such change in the Underlying Series'
reimbursement fee.
The public offering price of shares of the Domestic Equity Portfolios,
United Kingdom Small Company Portfolio, Large Cap International Portfolio,
RWB/DFA International High Book to Market Portfolio and the Fixed Income
Portfolios is the net asset value thereof next determined after the receipt
of the investor's funds by the Custodian, provided that an Account
Registration Form in good order has been received by the Transfer Agent; no
sales charge or reimbursement fee is imposed.
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DISTRIBUTION
The Fund acts as distributor of each series of its own shares of stock.
It has, however, entered into an agreement with DFA Securities Inc., a wholly
owned subsidiary of the Advisor, pursuant to which DFA Securities Inc. is
responsible for supervising the sale of each series of shares. No
compensation is paid by the Fund to DFA Securities Inc. under this agreement.
EXCHANGE OF SHARES
Investors may exchange shares of one Portfolio for those of another
Portfolio by first contacting the Advisor at (310) 395-8005 to notify the
Advisor of the proposed exchange and then completing an Exchange Form and
mailing it to:
DFA Investment Dimensions Group Inc.
Attn: Client Operations
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
The minimum amount for an exchange is $100,000. Exchanges are accepted
into or from the International Equity Portfolios only with respect to: (1)
Large Cap International Portfolio; (2) a Feeder Portfolio and another
open-end investment company advised or administered by the Advisor, provided
that the Feeder Portfolio and investment company both invest substantially
all of their assets in the same series of shares of the Trust; and (3)
International Small Company Portfolio and any of the Feeder Portfolios which
invest in the Underlying Series.
Investors in any Portfolio eligible for the exchange privilege also may
exchange all or part of their Portfolio shares into a portfolio of
Dimensional Investment Group Inc., an open-end, management investment
company, subject to the minimum purchase requirement set forth in that fund's
prospectus. Investors may contact the Advisor at the above-listed phone
number for more information on such exchanges and to request a copy of the
prospectus of Dimensional Investment Group Inc.
The exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the markets. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt
the management of the Portfolios or otherwise adversely affect the Fund, any
proposed exchange will be subject to the approval of the Advisor. Such
approval will depend on: (i) the size of the proposed exchange; (ii) the
prior number of exchanges by that shareholder; (iii) the nature of the
underlying securities and the cash position of the Portfolios involved in the
proposed exchange; (iv) the transaction costs involved in processing the
exchange; and (v) the total number of redemptions by exchange already made
out of a Portfolio.
The redemption and purchase prices of shares redeemed and purchased by
exchange, respectively, are the net asset values next determined after the
Advisor has received an Exchange Form in good order. Exchanges with respect
to International Small Company Portfolio and any of the Feeder Portfolios
which invest in the Underlying Series are not subject to a reimbursement fee.
"Good order" means a completed Exchange Form specifying the dollar amount to
be exchanged, signed by all registered owners of the shares; and if the Fund
does not have on file the authorized signatures for the account, a guarantee
of the signature of each registered owner by an "eligible guarantor
institution." Such institutions generally include national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, credit unions and members of a recognized stock exchange. Exchanges
will be accepted only if the registrations of the two accounts are identical,
stock certificates have not been issued and the shares of the Portfolio being
acquired are registered in the investor's state of residence.
There is no fee imposed on an exchange. However, the Fund reserves the
right to impose an administrative fee in order to cover the costs incurred in
processing an exchange. Any such fee will be disclosed in the prospectus.
An exchange is treated as a redemption and a purchase. Therefore, an
investor could realize a taxable gain or a loss on the transaction. The Fund
reserves the right to revise or terminate the exchange privilege, waive the
minimum amount requirement, limit the amount of or reject any exchange, as
deemed necessary, at any time.
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REDEMPTION OF SHARES
Investors who desire to redeem shares of a Portfolio must first contact
the Advisor at the telephone number shown under "PURCHASE OF SHARES." Each
Portfolio will redeem shares at the net asset value of such shares next
determined, either: (1) where stock certificates have not been issued, after
receipt of a written request for redemption in good order, by the Fund's
Transfer Agent or (2) if stock certificates have been issued, after receipt
of the stock certificates in good order at the office of the Transfer Agent.
"Good order" means that the request to redeem shares must include all
necessary documentation, to be received in writing by the Advisor no later
than the close of regular trading on the NYSE (ordinarily 1:00 p.m. PST),
including: the stock certificate(s), if issued; a letter of instruction or a
stock assignment specifying the number of shares or dollar amount to be
redeemed, signed by all registered owners (or authorized representatives
thereof) of the shares; and, if the Fund does not have on file the authorized
signatures for the account, a guarantee of the signature of each registered
owner by an eligible guarantor institution; and any other required supporting
legal documents.
Shareholders redeeming shares for which certificates have not been
issued, who have authorized redemption payment by wire on an authorization
form filed with the Fund, may request that redemption proceeds be paid in
federal funds wired to the bank they have designated on the authorization
form. The Fund reserves the right to send redemption proceeds by check in
its discretion; a shareholder may request overnight delivery of such check at
the shareholder's own expense. If the proceeds are wired to the
shareholder's account at a bank which is not a member of the Federal Reserve
System, there could be a delay in crediting the funds to the shareholder's
bank account. The Fund reserves the right at any time to suspend or
terminate the redemption by wire procedure after prior notification to
shareholders. No charge is made by the Fund for redemptions. The redemption
of all shares in an account will result in the account being closed. A new
Account Registration Form will be required for future investments. (See
"PURCHASE OF SHARES.")
Although the redemption payments will ordinarily be made within seven
days after receipt, payment to investors redeeming shares which were
purchased by check will not be made until the Fund can verify that the
payments for the purchase have been, or will be, collected, which may take up
to fifteen days or more. Investors may avoid this delay by submitting a
certified check along with the purchase order.
With respect to each Portfolio, the Fund reserves the right to redeem a
shareholder's account if the value of the shares in a specific portfolio is
$500 or less, whether because of redemptions, a decline in the portfolio's
net asset value per share or any other reason. Before the Fund involuntarily
redeems shares from such an account and sends the proceeds to the
stockholder, the Fund will give written notice of the redemption to the
stockholder at least sixty days in advance of the redemption date. The
stockholder will then have sixty days from the date of the notice to make an
additional investment in the Fund in order to bring the value of the shares
in the account for a specific portfolio to more than $500 and avoid such
involuntary redemption. The redemption price to be paid to a stockholder for
shares redeemed by the Fund under this right will be the aggregate net asset
value of the shares in the account at the close of business on the redemption
date.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on June 15, 1981. Until
June 1983, the Fund was named DFA Small Company Fund Inc. The shares of each
Portfolio, when issued and paid for in accordance with the Fund's prospectus,
will be fully paid and non-assessable shares, with equal, non-cumulative
voting rights and no preferences as to conversion, exchange, dividends,
redemption or any other feature.
With respect to matters which require shareholder approval, shareholders
are entitled to vote only with respect to matters which affect the interest
of the class of shares (Portfolio) which they hold, except as otherwise
required by applicable law. If liquidation of the Fund should occur,
shareholders would be entitled to receive on a per class basis the assets of
the particular Portfolio whose shares they own, as well as a proportionate
share of Fund assets not attributable to any particular class. Ordinarily,
the Fund does not intend to hold annual meetings of shareholders, except as
required by the Investment Company Act of 1940 or other applicable law. The
Fund's bylaws provide that special meetings of shareholders shall be called
at the written request of at least 10% of the votes entitled to be cast at
such meeting. Such meeting may be called to consider any matter, including
the
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<PAGE>
removal of one or more directors. Shareholders will receive shareholder
communications with respect to such matters as required by the Investment
Company Act of 1940, including semi-annual and annual financial statements of
the Fund, the latter being audited at least once each year.
The DFA Investment Trust Company was organized as a Delaware business
trust on October 27, 1992. The Trust offers shares of its Series only to
institutional investors in private offerings. The Fund may withdraw the
investment of a Feeder Portfolio in a Series of the Trust at any time, if the
Board of Directors of the Fund determines that it is in the best interests of
the Portfolio to do so. Upon any such withdrawal, the Board of Directors of
the Fund would consider what action might be taken, including the investment
of all of the assets of the Portfolio in another pooled investment entity
having the same investment objective as the Portfolio or the hiring of an
investment advisor to manage the Portfolio's assets in accordance with the
investment policies described above.
Whenever a Feeder Portfolio, as an investor in its corresponding Trust
Series, is asked to vote on a shareholder proposal, the Fund will solicit
voting instructions from the Feeder Portfolio's shareholders with respect to
the proposal. The Directors of the Fund will then vote the Feeder
Portfolio's shares in the Series in accordance with the voting instructions
received from the Feeder Portfolio's shareholders. The Directors of the Fund
will vote shares of the Feeder Portfolio for which they receive no voting
instructions in accordance with their best judgment. If a majority
shareholder of a Partnership Series redeems its entire interest in the
Series, a majority in interest of the remaining shareholders in the Series
must vote to approve the continuing existence of the Series or the Series
will be liquidated.
The Portfolios and the Series may disseminate reports of their investment
performance from time to time. Investment performance is calculated on a
total return basis; that is by including all net investment income and any
realized and unrealized net capital gains or losses during the period for
which investment performance is reported. If dividends or capital gains
distributions have been paid during the relevant period the calculation of
investment performance will include such dividends and capital gains
distributions as though reinvested in shares of the Portfolio or Series.
Standard quotations of total return, which include deductions of any
applicable reimbursement fees, are computed in accordance with SEC Guidelines
and are presented whenever any non-standard quotations are disseminated to
provide comparability to other investment companies. Non-standardized total
return quotations may differ from the SEC Guideline computations by covering
different time periods, excluding deduction of reimbursement fees charged to
investors and paid to the Portfolios which would otherwise reduce returns
quotations, and linking actual Portfolio return with simulated data for
periods prior to a Portfolio's inception. In all cases, disclosures are made
when performance quotations differ from the SEC Guidelines which were
established effective May 1, 1988. Performance data is based on historical
earnings and is not intended to indicate future performance. Rates of return
expressed on an annual basis will usually not equal the sum of returns
expressed for consecutive interim periods due to the compounding of the
interim yields. The Fund's Annual Report to shareholders for the fiscal year
ended November 30, 1995, and Semi-Annual Report to shareholders for the six
months ended May 31, 1996, contain additional performance information. A
copy of each of the Annual Report and the Semi-Annual Report is available
upon request and without charge.
With respect to the International Equity Portfolios and DFA Global Fixed
Income Portfolio, rates of return expressed as a percentage of U.S. dollars
will reflect applicable currency exchange rates at the beginning and ending
dates of the investment periods presented. The return expressed in terms of
U.S. dollars is the return one would achieve by investing dollars in the
Portfolio at the beginning of the period and liquidating the investment in
dollars at the end of the period. Hence, the return expressed as a
percentage of U.S. dollars combines the investment performance of the
Portfolio as well as the performance of the local currency or currencies of
the Portfolio. Inasmuch as DFA Global Fixed Income Portfolio intends to
continually hedge against the risk of variations in currency exchange rates,
the Advisor believes that the variation of the Portfolio's investment
performance in relation to fluctuations in currency exchange rates will be
minimized.
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As of November 30, 1996, the following persons beneficially owned more than
25% of the voting securities of the following Portfolios:
U.S. LARGE COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 64.82%
101 Montgomery Street, San Francisco, CA 94104
U.S. LARGE CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 48.76%
101 Montgomery Street, San Francisco, CA 94104
DFA REAL ESTATE SECURITIES PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 41.48%
101 Montgomery Street, San Francisco, CA 94104
Owens-Illinois Master Retirement Trust 32.16%
34 Exchange Place, Jersey City, NJ 07302
JAPANESE SMALL COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 37.96%
101 Montgomery Street, San Francisco, CA 94104
BellSouth Corporation Master Pension Trust 34.84%
1155 Peachtree Street, N.E., Atlanta, GA 30367
PACIFIC RIM SMALL COMPANY PORTFOLIO
BellSouth Corporation Master Pension Trust 60.54%
1155 Peachtree Street, N.E., Atlanta, GA 30367
UNITED KINGDOM SMALL COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 41.38%
101 Montgomery Street, San Francisco, CA 94104
BellSouth Corporation Master Pension Trust 39.33%
1155 Peachtree Street, N.E., Atlanta, GA 30367
DFA ONE-YEAR FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 25.20%
101 Montgomery Street, San Francisco, CA 94104
EMERGING MARKETS PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 61.50%
101 Montgomery Street, San Francisco, CA 94104
- ---------------
* Owner of record only.
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CONTINENTAL SMALL COMPANY PORTFOLIO
BellSouth Corporation Master Pension Trust 39.05%
1155 Peachtree Street, N.E., Atlanta, GA 30367-6000
Charles Schwab & Company, Inc. - REIN* 35.98%
101 Montgomery Street, San Francisco, CA 94104
LARGE CAP INTERNATIONAL PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 77.74%
101 Montgomery Street, San Francisco, CA 94104
RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 90.44%
101 Montgomery Street, San Francisco, CA 94104
DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 54.85%
101 Montgomery Street, San Francisco, CA 94104
BellSouth Corporation Master Pension Trust 30.86%
1155 Peachtree Street, N.E., Atlanta, GA 30367-6000
DFA FIVE-YEAR GOVERNMENT PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 64.61%
101 Montgomery Street, San Francisco, CA 94104
DFA GLOBAL FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 48.22%
101 Montgomery Street, San Francisco, CA 94104
DFA INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 71.44%
101 Montgomery Street, San Francisco, CA 94104
DFA TWO-YEAR GLOBAL FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 53.50%
101 Montgomery Street, San Francisco, CA 94104
Charles Schwab & Company, Inc. - REIN* 44.16%
101 Montgomery Street, San Francisco, CA 94104
ENHANCED U.S. LARGE COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 82.46%
101 Montgomery Street, San Francisco, CA 94104
- -----------
* Owner of record only
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DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Dimensional Fund Advisors Inc. 100%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
DFA TWO-YEAR GOVERNMENT PORTFOLIO
Dimensional Fund Advisors Inc. 100%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
INTERNATIONAL SMALL COMPANY PORTFOLIO
San Diego County Employees Retirement Association 77.89%
1495 Pacific Highway
San Diego, CA 92101
U.S. SMALL CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 27.03%
101 Montgomery Street, San Francisco, CA 94104
Shareholder inquiries may be made by writing or calling the Fund at the
address or telephone number appearing on the cover of this prospectus. Only
those individuals whose signatures are on file for the account in question may
receive specific account information or make changes in the account
registration.
- -----------
* Owner of record only.
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DFA INVESTMENT DIMENSIONS GROUP INC.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
INVESTMENT ADVISOR
- ------------------
DIMENSIONAL FUND ADVISORS INC.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Tel. No. (310) 395-8005
SUB-ADVISORS
- ------------
DIMENSIONAL FUND ADVISORS LTD.
14 Berkeley Street
London W1X 5AD
England
Tel. No. (071) 495-2343
DFA AUSTRALIA PTY LIMITED
Suite 4403 Gateway
1 MacQuarie Place
Sydney, New South Wales 2000
Australia
CUSTODIANS - INTERNATIONAL
- --------------------------
BOSTON SAFE DEPOSIT AND TRUST COMPANY
Princess House
1 Suffolk Lane
London EC4R 0AN
England
THE CHASE MANHATTAN BANK
4 Chase Metrotech Center
Brooklyn, NY 11245
CUSTODIAN - DOMESTIC
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PNC BANK, N.A.
200 Stevens Drive, Airport Business Center
Lester, PA 19113
TRANSFER AND DIVIDEND DISBURSING AGENT
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PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
LEGAL COUNSEL
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STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
INDEPENDENT ACCOUNTANTS
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COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
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DFA INVESTMENT DIMENSIONS GROUP INC.
1299 OCEAN AVENUE, 11TH FLOOR, SANTA MONICA, CALIFORNIA 90401
TELEPHONE: (310) 395-8005
STATEMENT OF ADDITIONAL INFORMATION
December 20, 1996
DFA Investment Dimensions Group Inc. (the "Fund") offers thirty series of
shares. This statement of additional information relates to twenty-four of
those series: U.S. 9-10 SMALL COMPANY PORTFOLIO, U.S. 6-10 SMALL COMPANY
PORTFOLIO, U.S. LARGE COMPANY PORTFOLIO, ENHANCED U.S. LARGE COMPANY
PORTFOLIO, U.S. SMALL CAP VALUE PORTFOLIO, U.S. LARGE CAP VALUE PORTFOLIO,
DFA REAL ESTATE SECURITIES PORTFOLIO, JAPANESE SMALL COMPANY PORTFOLIO,
PACIFIC RIM SMALL COMPANY PORTFOLIO, UNITED KINGDOM SMALL COMPANY PORTFOLIO,
EMERGING MARKETS PORTFOLIO, EMERGING MARKETS SMALL CAP PORTFOLIO, CONTINENTAL
SMALL COMPANY PORTFOLIO, LARGE CAP INTERNATIONAL PORTFOLIO, RWB/DFA
INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO, DFA INTERNATIONAL SMALL CAP
VALUE PORTFOLIO, INTERNATIONAL SMALL COMPANY PORTFOLIO, DFA ONE-YEAR FIXED
INCOME PORTFOLIO, DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO, DFA TWO-YEAR
GLOBAL FIXED INCOME PORTFOLIO, DFA TWO-YEAR GOVERNMENT PORTFOLIO, DFA
FIVE-YEAR GOVERNMENT PORTFOLIO, DFA GLOBAL FIXED INCOME PORTFOLIO AND DFA
INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO (collectively, the
"Portfolios"). This statement of additional information is not a prospectus
but should be read in conjunction with the Portfolios' prospectus dated
December 20, 1996, as amended from time to time, which can be obtained from
the Fund by writing to the Fund at the above address or by calling the above
telephone number.
TABLE OF CONTENTS
PAGE
PORTFOLIO CHARACTERISTICS AND POLICIES................................. 1
BROKERAGE COMMISSIONS.................................................. 2
INVESTMENT LIMITATIONS................................................. 4
OPTIONS ON STOCK INDICES............................................... 7
FUTURES CONTRACTS...................................................... 9
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND SIMILAR
POSITIONS.............................................................. 10
DIRECTORS AND OFFICERS................................................. 11
ADMINISTRATIVE SERVICES................................................ 13
OTHER INFORMATION...................................................... 14
PRINCIPAL HOLDERS OF SECURITIES........................................ 15
PURCHASE OF SHARES..................................................... 21
REDEMPTION AND TRANSFER OF SHARES...................................... 22
CALCULATION OF PERFORMANCE DATA........................................ 22
FINANCIAL STATEMENTS................................................... 26
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PORTFOLIO CHARACTERISTICS AND POLICIES
The following information supplements the information set forth in the
prospectus under the captions "PORTFOLIO CHARACTERISTICS AND POLICIES - SMALL
COMPANY PORTFOLIOS," "INTERNATIONAL SMALL COMPANY PORTFOLIO - Investment
Objectives and Policies," "U.S. LARGE COMPANY PORTFOLIO - Investment
Objective and Policies," "ENHANCED U.S. LARGE COMPANY PORTFOLIO - Investment
Objective and Policies," "LARGE CAP INTERNATIONAL PORTFOLIO - Investment
Objective and Policies," "INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME
PORTFOLIOS," "DFA REAL ESTATE SECURITIES PORTFOLIO," "VALUE PORTFOLIOS -
Portfolio Characteristics and Policies," "RWB/DFA INTERNATIONAL HIGH BOOK TO
MARKET PORTFOLIO - Investment Objective and Policies," "EMERGING MARKETS
PORTFOLIO AND EMERGING MARKETS SMALL CAP PORTFOLIO - Investment Objectives
and Policies" and "DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO - Investment
Objective and Policies." The following information applies to all of the
Portfolios, except the Feeder Portfolios, and also to the Trust Series.
Because the structure of the Domestic and International Equity Portfolios
is based on the relative market capitalizations of eligible holdings, it is
possible that the Portfolios might include at least 5% of the outstanding
voting securities of one or more issuers. In such circumstances, the Fund
and the issuer would be deemed "affiliated persons" under the Investment
Company Act of 1940 and certain requirements of the Act regulating dealings
between affiliates might become applicable. However, based on the present
capitalizations of the groups of companies eligible for inclusion in the
Portfolios and the anticipated amount of a Portfolio's assets intended to be
invested in such securities, management does not anticipate that a Portfolio
will include as much as 5% of the voting securities of any issuer.
Each of the International Equity Portfolios may invest up to 5% of its
assets in convertible debentures issued by non-U.S. companies. Convertible
debentures include corporate bonds and notes that may be converted into or
exchanged for common stock. These securities are generally convertible
either at a stated price or a stated rate (that is, for a specific number of
shares of common stock or other security). As with other fixed income
securities, the price of a convertible debenture to some extent varies
inversely with interest rates. While providing a fixed-income stream
(generally higher in yield than the income derived from a common stock but
lower than that afforded by a non-convertible debenture), a convertible
debenture also affords the investor an opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible. As the market price of the underlying common stock
declines, convertible debentures tend to trade increasingly on a yield basis
and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common
stock increases, the price of a convertible debenture tends to rise as a
reflection of the value of the underlying common stock. To obtain such a
higher yield, a Portfolio may be required to pay for a convertible debenture
an amount in excess of the value of the underlying common stock. Common
stock acquired by a Portfolio upon conversion of a convertible debenture will
generally be held for so long as the Advisor anticipates such stock will
provide the Portfolio with opportunities which are consistent with the
Portfolio's investment objective and policies.
Because the relative market capitalizations of small companies compared
with larger companies generally do not change substantially over short
periods of time, the portfolio turnover rates of the Small Company Portfolios
ordinarily are anticipated to be low. The turnover rate for the
International Small Company Portfolio is not expected to exceed 25% per year.
Generally, securities will be purchased with the expectation that they will
be held for longer than one year. Generally, securities will be held until
such time as, in the Advisor's judgment, they are no longer considered an
appropriate holding in light of the policy of maintaining portfolios of
companies with small market capitalization. Because The DFA Real Estate
Securities Portfolio generally will hold securities for the long term, its
turnover rate ordinarily is anticipated to be low. Generally, securities
will be purchased with the expectation that they will be held for longer than
one year.
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BROKERAGE COMMISSIONS
The following table depicts brokerage commissions paid by the Fund
Portfolios. For Feeder Portfolios, the amounts include commissions paid by
the corresponding Series.
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
1995 1994 1993
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U.S. 9-10 Small Company $1,132,110 $1,431,640 $732,528
U.S. 6-10 Small Company 361,784 398,610 301,156
U.S. Large Company 15,289 10,643 58,218
Japanese Small Company 768,765 807,580 724,038
United Kingdom Small Company 236,754 138,025 97,468
Continental Small Company 244,705 343,484 343,850
Large Cap International 61,048 153,475 110,610
U.S. Small Cap Value 1,025,415 1,860,712 328,869
U.S. Large Cap Value 415,802 367,810 134,312
DFA Real Estate Securities 26,084 83,979 63,997
Pacific Rim Small Company 142,227 529,025 871,257
RWB/DFA International High Book to Market 542,306 623,031 233,355
Emerging Markets 166,601 79,105 ---
DFA International Small Cap Value 745,562 --- ---
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TOTAL $5,884,452 $6,827,119 $3,999,658
The substantial increases or decreases in the amount of brokerage
commissions paid by certain Portfolios from year to year indicated in the
foregoing table resulted from increases or decreases in the amount of
securities that were bought and sold by those Portfolios. During the fiscal
year 1993, The U.S. 6-10 Small Company Portfolio and Series and The U.S. 9-10
Small Company Portfolio paid total commissions of $29,934 to Kemper Capital
Markets, Inc., a securities firm which has been succeeded by Kemper
Securities, Inc., an affiliate of Kemper Financial Services, Inc., which
owned approximately 15.6% of the Advisor's outstanding stock during that
year. Such commissions represented .652% of the total commissions paid by
the Fund for such year and the total value of transactions as to which such
commissions relate were $4,551,431 or .482% of the Fund's total value of
transactions involving payment of commissions during fiscal year ended
November 30, 1993. No commissions were paid to affiliates or affiliates of
affiliates during fiscal years 1994 or 1995.
Please note that while the following discussion relates to the policies
of certain Portfolios with respect to brokerage commissions, it should be
understood that, with respect to a Feeder Portfolio and International Small
Company Portfolio, the discussion applies to the Series of the Trust in which
the Feeder Portfolio invests all of its assets and the Underlying Series,
respectively.
The Fixed Income Portfolios acquire and sell securities on a net basis
with dealers which are major market markers in such securities. The
Investment Committee of the Advisor selects dealers on the basis of their
size, market making and credit analysis ability. When executing portfolio
transactions, the Advisor seeks to obtain the most favorable price for the
securities being traded among the dealers with whom the Fixed Income
Portfolios effect transactions.
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Portfolio transactions will be placed with a view to receiving the best
price and execution. The Portfolios will seek to acquire and dispose of
securities in a manner which would cause as little fluctuation in the market
prices of stocks being purchased or sold as possible in light of the size of
the transactions being effected, and brokers will be selected with this goal
in view. The Advisor monitors the performance of brokers which effect
transactions for the Portfolios to determine the effect that their trading
has on the market prices of the securities in which they invest. The Advisor
also checks the rate of commission being paid by the Portfolios to their
brokers to ascertain that they are competitive with those charged by other
brokers for similar services. Dimensional Fund Advisors Ltd. performs these
services for the United Kingdom and Continental Small Company Series and DFA
Australia Pty Ltd. performs these services for the Japanese and Pacific Rim
Small Company Series. Transactions also may be placed with brokers who
provide the Advisor or the sub-advisors with investment research, such as
reports concerning individual issuers, industries and general economic and
financial trends and other research services. Brokerage transactions may be
placed with securities firms that are affiliated with an affiliate of the
Advisor. Commission paid on such transactions would be commensurate with the
rate of commissions paid on similar transactions to brokers that are not so
affiliated.
The OTC companies eligible for purchase by The U.S. 9-10 Small Company
Portfolio, The U.S. 6-10 Small Company Portfolio, The U.S. Small Cap Value
Portfolio, and The DFA Real Estate Securities Portfolio are thinly traded
securities. Therefore, the Advisor believes it needs maximum flexibility to
effect OTC trades on a best execution basis. To that end, the Advisor places
buy and sell orders with market makers, third market brokers, Instinet and
with brokers on an agency basis when the Advisor determines that the
securities may not be available from other sources at a more favorable price.
Third market brokers enable the Advisor to trade with other institutional
holders directly on a net basis. This allows the Advisor to sometimes trade
larger blocks than would be possible by going through a single market maker.
Instinet is an electronic information and communication network whose
subscribers include most market makers as well as many institutions.
Instinet charges a commission for each trade executed on its system. On any
given trade, The U.S. 9-10 Small Company Portfolio, The U.S. 6-10 Small
Company Portfolio, the Value Portfolios and The DFA Real Estate Securities
Portfolio, by trading through Instinet, would pay a spread to a dealer on the
other side of the trade plus a commission to Instinet. However, placing a
buy (or sell) order on Instinet communicates to many (potentially all) market
makers and institutions at once. This can create a more complete picture of
the market and thus increase the likelihood that the Portfolios can effect
transactions at the best available prices.
During the fiscal year 1995, the Portfolios or, in the case of a Feeder
Portfolio, its corresponding Series, paid commissions for securities
transactions to brokers which provided market price monitoring services,
market studies and research services to the Portfolios or Series as follows:
VALUE OF BROKERAGE
SECURITIES TRANSACTIONS COMMISSIONS
U.S. 9-10 Small Company $ 73,540,398 $ 319,350
U.S. 6-10 Small Company 45,143,939 176,059
U.S. Small Cap Value 99,862,560 493,455
U.S. Large Cap Value 155,807,866 221,667
DFA Real Estate Securities 10,362,100 20,848
Pacific Rim Small Company Portfolio 2,906,311 11,774
U.S. Large Company 0 0
Emerging Markets Portfolio 107,211 804
Continental Small Company Portfolio 14,082,656 66,367
RWB/DFA International High Book to Market 34,304,000 85,760
DFA International Small Cap Value 1,892,230 8,399
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TOTAL: $438,009,271 $1,404,483
============ ==========
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The investment advisory agreements permit the Advisor knowingly to pay
commissions on these transactions which are greater than another broker might
charge if the Advisor, in good faith, determines that the commissions paid
are reasonable in relation to the research or brokerage services provided by
the broker or dealer when viewed in terms of either a particular transaction
or the Advisor's overall responsibilities to the Fund. Research services
furnished by brokers through whom securities transactions are effected may be
used by the Advisor in servicing all of its accounts and not all such
services may be used by the Advisor with respect to the Fund.
Brokerage commissions for transactions in securities listed on the Tokyo
Stock Exchange ("TSE") and other Japanese securities exchanges are fixed.
Under the current regulations of the TSE and the Japanese Ministry of
Finance, member and non-member firms of Japanese exchanges are required to
charge full commissions to all customers other than banks and certain
financial institutions, but members and licensed non-member firms may confirm
transactions to banks and financial institution affiliates located outside
Japan with institutional discounts on brokerage commissions. The Japanese
Small Company Portfolio has been able to avail itself of institutional
discounts. The Portfolio's ability to effect transactions at a discount from
fixed commission rates depends on a number of factors, including the size of
the transaction, the relation between the cost to the member or the licensed
non-member firm of effecting such transaction and the commission receivable,
and the law, regulation and practice discussed above. There can be no
assurance that the Series will continue to be able to realize the benefit of
discounts from fixed commissions.
A Feeder Portfolio will not incur any brokerage or other costs in
connection with its purchase or redemption of shares of the corresponding
Series of the Trust.
INVESTMENT LIMITATIONS
Each of the Portfolios has adopted certain limitations which may not be
changed with respect to any Portfolio without the approval of a majority of
the outstanding voting securities of the Portfolio. A "majority" is defined
as the lesser of: (1) at least 67% of the voting securities of the Portfolio
(to be affected by the proposed change) present at a meeting if the holders
of more than 50% of the outstanding voting securities of the Portfolio are
present or represented by proxy, or (2) more than 50% of the outstanding
voting securities of such Portfolio.
The Portfolios will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, except The DFA Real Estate Securities Portfolio, although
they may purchase and sell securities of companies which deal in real estate
and securities which are secured by interests in real estate, and all
Portfolios except The U.S. 9-10 and 6-10 Small Company Portfolios, The DFA
One-Year Fixed Income Portfolio and The DFA Five-Year Government Portfolio
may purchase or sell financial futures contracts and options thereon; and the
Enhanced U.S. Large Company Portfolio may purchase, sell and enter into
indices-related futures contracts, options on such futures contracts,
securities-related swap agreements and other derivative instruments;
(2) make loans of cash, except through the acquisition of repurchase
agreements and obligations customarily purchased by institutional investors;
(3) as to 75% of the total assets of a Portfolio, invest in the securities of
any issuer (except obligations of the U.S. Government and its
instrumentalities) if, as a result, more than 5% of the Portfolio's total
assets, at market, would be invested in the securities of such issuer,
provided that this limitation applies to 100% of the total assets of The U.S.
9-10 Small Company Portfolio and The DFA Global Fixed Income Portfolio is not
subject to this limitation;
(4) purchase or retain securities of an issuer if those officers and
directors of the Fund or the Advisor owning more than 1/2 of 1% of such
securities together own more than 5% of such securities;
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(5) borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 5% of a Portfolio's
gross assets valued at the lower of market or cost; provided that The United
Kingdom, Pacific Rim and Continental Small Company Portfolios, The Large Cap
International Portfolio, DFA Two-Year Corporate Fixed Income Portfolio, DFA
Two-Year Government Portfolio, DFA Two-Year Global Fixed Income Portfolio,
DFA Global Fixed Income Portfolio, U.S. Large Company Portfolio, Enhanced
U.S. Large Company Portfolio, The DFA Real Estate Securities Portfolio, the
Value Portfolios, RWB/DFA International High Book to Market Portfolio, The
U.S. 6-10 Small Company Portfolio, Emerging Markets Portfolio, Emerging
Markets Small Cap Portfolio, International Small Company Portfolio and the
DFA International Small Cap Value Portfolio may borrow amounts not exceeding
33% of their net assets from banks and pledge not more than 33% of such
assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except as described in (5)
above;
(7) invest more than 10% of the value of the Portfolio's total assets in
illiquid securities which include certain restricted securities, repurchase
agreements with maturities of greater than seven days, and other illiquid
investments; provided that the Enhanced U.S. Large Company, DFA Two-Year
Corporate Fixed Income, DFA Two-Year Government, DFA Two-Year Global Fixed
Income, International Small Company and Emerging Markets Small Cap Portfolios
are not subject to this limitation and The DFA Real Estate Securities
Portfolio, the Value Portfolios, the RWB/DFA International High Book to
Market Portfolio, The U.S. 6-10 Small Company Portfolio, the Emerging Markets
Portfolio, DFA International Small Cap Value Portfolio, may invest not more
than 15% of their total assets in illiquid securities;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization, provided that The DFA Real Estate Securities Portfolio may
invest in a REIT that is registered as an investment company; and provided
that the Enhanced U.S. Large Company Portfolio may invest its assets in
securities of investment companies and units of such companies such as, but
not limited to, S&P Depositary Receipts; and provided that the Emerging
Markets, Emerging Markets Small Cap and International Small Company
Portfolios are not subject to this limitation;
(11) invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation, except this limitation does not apply to The DFA Real Estate
Securities Portfolio;
(12) acquire any securities of companies within one industry if, as a result
of such acquisition, more than 25% of the value of the Portfolio's total
assets would be invested in securities of companies within such industry;
except DFA One-Year Fixed Income, DFA Two-Year Corporate Fixed Income and DFA
Two-Year Global Fixed Income Portfolios shall invest more than 25% of its
total assets in obligations of banks and bank holding companies in the
circumstances described in the prospectus under "Investments in the Banking
Industry" and as otherwise described under "Portfolio Strategy"; except The
DFA Real Estate Securities Portfolio shall invest more than 25% of its total
assets in securities of companies in the real estate industry;
(13) write or acquire options (except as described in (1) above) or interests
in oil, gas or other mineral exploration, leases or development programs,
except the Enhanced U.S. Large Company Portfolio may write or acquire options;
(14) purchase warrants, however, the Domestic and International Equity
Portfolios may acquire warrants as a result of corporate actions involving
their holdings of other equity securities;
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(15) purchase securities on margin or sell short;
(16) acquire more than 10% of the voting securities of any issuer and The
U.S. 9-10 Small Company Portfolio will not acquire more than 10% of any class
of securities of any issuer; provided that this limitation applies only to
75% of the assets of The DFA Real Estate Securities Portfolio, the Value
Portfolios, the Emerging Markets Portfolio, the Emerging Markets Small Cap
Portfolio and the DFA International Small Cap Value Portfolio.
The investment limitations described in (3), (7), (9), (10), (11), (12)
and (16) above do not prohibit each Feeder Portfolio and International Small
Company Portfolio from investing all or substantially all of its assets in
the shares of another registered, open-end investment company, such as the
Series of the Trust. The investment limitations of each Series are the same
as those of the corresponding Feeder Portfolio.
The investment limitations described in (1) and (15) above do not
prohibit each Portfolio that may purchase or sell financial futures contracts
and options thereon from making margin deposits to the extent permitted under
applicable regulations; and the investment limitations described in (1), (13)
and (15) above do not prohibit the Enhanced U.S. Large Company Portfolio from
(i) making margin deposits in connection with transactions in options; and
(ii) maintaining a short position, or purchasing, writing or selling puts,
calls, straddles, spreads or combinations thereof in connection with
transactions in options, futures, and options on futures and transactions
arising under swap agreements or other derivative instruments;
For purposes of (5) above, the Emerging Markets Portfolio and the
Emerging Markets Small Cap Portfolio (indirectly through their investment in
the corresponding Series of the Trust) may borrow in connection with a
foreign currency transaction or the settlement of a portfolio trade. The
only type of borrowing contemplated thereby is the use of a letter of credit
issued on such Series' behalf in lieu of depositing initial margin in
connection with currency futures contracts, and the Series have no present
intent to engage in any other types of borrowing transactions under this
authority.
Although (2) above prohibits cash loans, the Portfolios are authorized to
lend portfolio securities. Inasmuch as the Feeder Portfolios and
International Small Company Portfolio will only hold shares of certain Series
of the Trust, these Portfolios do not intend to lend those shares.
For the purposes of (7) above, DFA One-Year Fixed Income Portfolio, DFA
Two-Year Corporate Fixed Income Portfolio, DFA Two-Year Global Fixed Income
Portfolio (indirectly through their investment in the corresponding Series)
and DFA Global Fixed Income Portfolio may invest in commercial paper that is
exempt from the registration requirements of the Securities Act of 1933 (the
"1933 Act") subject to the requirements regarding credit ratings stated in
the prospectus under "Description of Investments." Further, pursuant to Rule
144A under the 1933 Act, the Portfolios may purchase certain unregistered
(i.e. restricted) securities upon a determination that a liquid institutional
market exists for the securities. If it is decided that a liquid market does
exist, the securities will not be subject to the 10% or 15% limitation on
holdings of illiquid securities stated in (7) above. While maintaining
oversight, the Board of Directors has delegated the day-to-day function of
making liquidity determinations to the Advisor. For 144A securities to be
considered liquid, there must be at least two dealers making a market in such
securities. After purchase, the Board of Directors and the Advisor will
continue to monitor the liquidity of Rule 144A securities.
For the purposes of (12) above, utility companies will be divided
according to their services; e.g., gas, gas transmission, electric and gas,
electric, water and telephone will each be considered a separate industry.
Although not a fundamental policy subject to shareholder approval: (1)
The Large Cap International and Small Company Portfolios, including The U.S.
6-10 Small Company, Japanese Small Company, Pacific Rim Small Company, United
Kingdom Small Company and Continental Small Company Portfolios indirectly
through their investment in the corresponding Series of the Trust, do not
intend to
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purchase interests in any real estate investment trust; and (2) the Enhanced
U.S. Large Company, DFA Two-Year Corporate Fixed Income, DFA Two-Year
Government, DFA Two-Year Global Fixed Income, International Small Company and
Emerging Markets Small Cap Portfolios (indirectly through their investment in
the Trust Series) do not intend to invest more than 15% of their total assets
in illiquid securities.
The International Equity, DFA Two-Year Global Fixed Income and DFA Global
Fixed Income Portfolios (directly or indirectly through their investment in
the Trust Series) may acquire and sell forward foreign currency exchange
contracts in order to hedge against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set in the contract. While each Value
Portfolio, RWB/DFA International High Book to Market Portfolio, and DFA Real
Estate Securities Portfolio (directly or indirectly through their investment
in the Trust Series), have retained authority to buy and sell financial
futures contracts and options thereon, they have no present intention to do
so.
Notwithstanding any of the above investment restrictions, the Emerging
Markets Series and the Emerging Markets Small Cap Series may establish
subsidiaries or other similar vehicles for the purpose of conducting their
investment operations in Approved Markets, if such subsidiaries or vehicles
are required by local laws or regulations governing foreign investors such as
the Series or whose use is otherwise considered by the Series to be
advisable. Each Series would "look through" any such vehicle to determine
compliance with their investment restrictions.
Unless otherwise indicated, all limitations applicable to the Portfolios'
and Series' investments apply only at the time that a transaction is
undertaken. Any subsequent change in a rating assigned by any rating service
to a security or change in the percentage of a Portfolio's or Series' assets
invested in certain securities or other instruments resulting from market
fluctuations or other changes in a Portfolio's or Series' total assets will
not require a Portfolio or Series to dispose of an investment until the
Advisor determines that it is practicable to sell or closeout the investment
without undue market or tax consequences. In the event that ratings services
assign different ratings to the same security, the Advisor will determine
which rating it believes best reflects the security's quality and risk at
that time, which may be the higher of the several assigned ratings.
OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase and sell options on
stock indices. With respect to the sale of call options on stock indices,
pursuant to published positions of the Securities and Exchange Commission
("SEC"), the Enhanced U.S. Large Company Series will either (1) maintain with
its custodian liquid assets equal to the contract value (less any margin
deposits); (2) hold a portfolio of stocks substantially replicating the
movement of the index underlying the call option; or (3) hold a separate call
on the same index as the call written where the exercise price of the call
held is (a) equal to or less than the exercise price of the call written, or
(b) greater than the exercise price of the call written, provided the
difference is maintained by the Series in liquid assets in a segregated
account with its custodian. With respect to the sale of put options on stock
indices, pursuant to published SEC positions, the Enhanced U.S. Large Company
Series will either (1) maintain liquid assets equal to the exercise price
(less any margin deposits) in a segregated account with its custodian; or (2)
hold a put on the same index as the put written where the exercise price of
the put held is (a) equal to or greater than the exercise price of the put
written, or (b) less than the exercise price of the put written, provided an
amount equal to the difference is maintained by the Series in liquid assets
in a segregated account with its custodian.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying index, exercise price, and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be
effected when the Enhanced U.S. Large Company Series desires.
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The Enhanced U.S. Large Company Series will realize a gain from a closing
purchase transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the Series will
realize a loss. The principal factors affecting the market value of a put or
a call option include supply and demand, interest rates, the current market
price of the underlying index in relation to the exercise price of the
option, the volatility of the underlying index, and the time remaining until
the expiration date.
If an option written by the Enhanced U.S. Large Company Series expires,
the Series realizes a gain equal to the premium received at the time the
option was written. If an option purchased by the Enhanced U.S. Large
Company Series expires unexercised, the Series realizes a loss equal to the
premium paid.
The premium paid for a put or call option purchased by the Enhanced U.S.
Large Company Series is an asset of the Series. The premium received for an
option written by the Series is recorded as a deferred credit. The value of
an option purchased or written is marked to market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid
and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON INDICES
There are several risks associated with transactions in options on
indices. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. The value of an option position will reflect, among other
things, the current market price of the underlying index, the time remaining
until expiration, the relationship of the exercise price, the term structure
of interest rates, estimated price volatility of the underlying index and
general market conditions. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of
market behavior or unexpected events.
Options normally have expiration dates of up to 90 days. The exercise
price of the options may be below, equal to or above the current market value
of the underlying index. Purchased options that expire unexercised have no
value. Unless an option purchased by the Enhanced U.S. Large Company Series
is exercised or unless a closing transaction is effected with respect to that
position, the Enhanced U.S. Large Company Series will realize a loss in the
amount of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Although
the Enhanced U.S. Large Company Series intends to purchase or write only
those options for which there appears to be an active secondary market, there
is no assurance that a liquid secondary market will exist for any particular
option at any specific time. Closing transactions may be effected with
respect to options traded in the over-the-counter markets only by negotiating
directly with the other party to the option contract, or in a secondary
market for the option if such a market exists. There can be no assurance
that the Enhanced U.S. Large Company Series will be able to liquidate an
over-the-counter option at a favorable price at any time prior to expiration.
In the event of insolvency of the counter-party, the Series may be unable to
liquidate an over-the-counter option. Accordingly, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the Enhanced U.S. Large Company Series would have to exercise those
options which they have purchased in order to realize any profit. With
respect to options written by the Enhanced U.S. Large Company Series, the
inability to enter into a closing transaction may result in material losses
to the Series.
Index prices may be distorted if trading of a substantial number of
securities included in the index is interrupted causing the trading of
options on that index to be halted. If a trading halt occurred, the Enhanced
U.S. Large Company Series would not be able to close out options which it had
purchased and may incur losses if the underlying index moved adversely before
trading resumed. If a trading halt occurred and restrictions prohibiting the
exercise of options were imposed through the close of trading on the last day
before expiration, exercises on that day would be settled on the basis of a
closing index value that may not reflect current price information for
securities representing a substantial portion of the value of the index.
8
<PAGE>
The Enhanced U.S. Large Company Series' activities in the options markets
may result in higher fund turnover rates and additional brokerage costs;
however, the Series may also save on commissions by using options as a hedge
rather than buying or selling individual securities in anticipation or as a
result of market movements.
INVESTMENT LIMITATIONS ON OPTIONS TRANSACTIONS
The ability of the Enhanced U.S. Large Company Series to engage in
options transactions is subject to certain limitations. The Enhanced U.S.
Large Company Series will only invest in over-the-counter options to the
extent consistent with the 15% limit on investments in illiquid securities.
FUTURES CONTRACTS
Please note that while the following discussion relates to the policies
of certain Portfolios with respect to futures contracts, it should be
understood that with respect to a Feeder Portfolio, the discussion applies to
the Series of the Trust in which the Feeder Portfolio invests all of its
assets.
All Portfolios, except The U.S. 9-10 and 6-10 Small Company Portfolios,
The DFA One-Year Fixed Income Portfolio and The DFA Five-Year Government
Portfolio, may enter into futures contracts and options on futures contracts.
Such Portfolios (with the exception of Enhanced U.S. Large Company Portfolio
and its corresponding Series) may enter into futures contracts and options on
future contracts only for the purpose of remaining fully invested and to
maintain liquidity to pay redemptions. The Enhanced U.S. Large Company
Portfolio may use futures contracts and options thereon to hedge against
securities prices or as part of its overall investment strategy.
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of defined securities at a specified
future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are
traded on national futures exchanges. The Portfolios or Series will be
required to make a margin deposit in cash or government securities with a
broker or custodian to initiate and maintain positions in futures contracts.
Minimal initial margin requirements are established by the futures exchange
and brokers may establish margin requirements which are higher than the
exchange requirements. After a futures contract position is opened, the
value of the contract is marked to market daily. If the futures contract
price changes to the extent that the margin on deposit does not satisfy
margin requirements, payment of additional "variation" margin will be
required. Conversely, reduction in the contract value may reduce the
required margin resulting in a repayment of excess margin to the Portfolio or
Series. Variation margin payments are made to and from the futures broker
for as long as the contract remains open. The Portfolios or Series expect to
earn income on their margin deposits. To the extent that a Series or
Portfolio invests in futures contracts and options thereon for other than
bona fide hedging purposes, no Series or Portfolio will enter into such
transactions if, immediately thereafter, the sum of the amount of initial
margin deposits and premiums paid for open futures options would exceed 5% of
the Series' or Portfolio's total assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into;
provided, however, that, in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the
5%. Pursuant to published positions of the SEC, the Portfolios or Series may
be required to maintain segregated accounts consisting of liquid assets, (or,
as permitted under applicable regulation, enter into offsetting positions) in
connection with its futures contract transactions in order to cover its
obligations with respect to such contracts.
Positions in futures contracts may be closed out only on an exchange
which provides a secondary market. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Therefore, it might not be possible to close a futures
position and, in the event of adverse price movements, the Portfolio or
Series would continue to be required to continue to make variation margin
deposits. In such circumstances, if the Portfolio or Series has insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it might be
9
<PAGE>
disadvantageous to do so. Management intends to minimize the possibility
that it will be unable to close out a futures contract by only entering into
futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
FEDERAL TAX TREATMENT OF OPTIONS,
FUTURES CONTRACTS AND SIMILAR POSITIONS
The investment by a Portfolio (or in the case of a Feeder Portfolio, by a
corresponding Series) in options, futures contracts and options on futures
contracts is subject to many complex and special tax rules. For example,
options on stock and on narrow-based stock indexes will generally produce
long-term or short-term capital gain or loss upon the exercise, lapse, or
closing out of the option or sale of the underlying stock or security. By
contrast, the treatment by a Portfolio or Series of certain other options,
futures and forward contracts is generally governed by Section 1256 of the
Code. These "Section 1256" positions generally include listed options on
debt securities, options on broad-based stock indexes, options on futures
contracts, regulated futures contracts and certain foreign currency contracts
and options thereon.
Absent a tax election to the contrary, each such Section 1256 position
held by a Portfolio or Series will be marked-to-market (i.e., treated as if
it were sold for fair market value) on the last business day of a Portfolio's
or Series' fiscal year, and all gain or loss associated with fiscal year
transactions and marked-to-market positions at fiscal year end (except
certain currency gain or loss covered by Section 988 of the Code) will
generally be treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. The effect of Section 1256 marked-to-market rules may
be to accelerate income or to convert what otherwise would have been
long-term capital gains into short-term capital gains or short-term capital
losses into long-term capital losses within a Portfolio or Series. The
acceleration of income on Section 1256 positions may require a Portfolio or
Series to accrue taxable income without the corresponding receipt of cash.
In order to generate cash to satisfy the distribution requirements of the
Code, a Portfolio or Series may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash
flows from other sources such as the sale of a Portfolio's or Series' shares.
In these ways, any or all of these rules may affect both the amount,
character and timing of income distributed to shareholders by a Portfolio.
When a Portfolio (or in the case of a Feeder Portfolio, the corresponding
Series) holds an option or contract which substantially diminishes a
Portfolio's or Series' risk of loss with respect to another position of a
Portfolio or Series (as might occur in some hedging transactions), this
combination of positions could be treated as a "straddle" for tax purposes,
resulting in possible deferral of losses, adjustments in the holding periods
of a Portfolio's or Series' securities and conversion of short-term capital
losses into long-term capital losses. Certain tax elections exist for mixed
straddles (i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256 position) which may reduce or eliminate the
operation of these straddle rules.
The Portfolios and those Series taxable as regulated investment companies
are also subject to the requirement that less than 30% of their annual gross
income be derived from the sale or other disposition of securities and
certain other investments held for less than three months ("short-short
income"). This requirement may limit a Portfolio's (or in the case of a
Feeder Portfolio, the corresponding Series') ability to engage in options,
straddles, hedging transactions and forward or futures contracts because
these transactions are often consummated in less than three months, may
require the sale of portfolio securities held less than three months and may,
as in the case of short sales of portfolio securities, reduce the holding
periods of certain securities within a Portfolio or Series, resulting in
additional short-short income for a Portfolio or Series.
A Portfolio (or in the case of a Feeder Portfolio, the corresponding
Series) will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of a Portfolio or Series as a regulated
investment company under Subchapter M of the Code.
10
<PAGE>
DIRECTORS AND OFFICERS
The names and addresses of the directors and officers of the Fund and a
brief statement of their present positions and principal occupations during
the past five years is set forth below.
DIRECTORS
David G. Booth*, 50, Director, President and Chairman-Chief Executive
Officer, Santa Monica, CA. President, Chairman-Chief Executive Officer and
Director, Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty Limited, Dimensional Investment Group Inc. (registered investment
company) and Dimensional Emerging Markets Fund Inc. (registered investment
company). Trustee, President and Chairman-Chief Executive Officer of The DFA
Investment Trust Company. Chairman and Director, Dimensional Fund Advisors
Ltd.
George M. Constantinides, 49, Director, Chicago, IL. Leo Melamed
Professor of Finance, Graduate School of Business, University of Chicago.
Trustee, The DFA Investment Trust Company. Director, Dimensional Investment
Group Inc. and Dimensional Emerging Markets Fund Inc.
John P. Gould, 57, Director, Chicago, IL. Steven G. Rothmeier
Distinguished Service Professor of Economics, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company and First
Prairie Funds (registered investment companies). Director, Dimensional
Investment Group Inc., Dimensional Emerging Markets Fund Inc. and Harbor
Investment Advisors. Executive Vice President, Lexecon Inc. (economics, law,
strategy and finance consulting).
Roger G. Ibbotson, 53, Director, New Haven, CT. Professor in Practice of
Finance, Yale School of Management. Trustee, The DFA Investment Trust
Company. Director, Dimensional Investment Group Inc., Dimensional Emerging
Markets Fund Inc., Hospital Fund, Inc. (investment management services) and
BIRR Portfolio Analysis, Inc. (software products). Chairman and President,
Ibbotson Associates, Inc., Chicago, IL (software, data, publishing and
consulting).
Merton H. Miller, 73, Director, Chicago, IL. Robert R. McCormick
Distinguished Service Professor Emeritus, Graduate School of Business,
University of Chicago. Trustee, The DFA Investment Trust Company. Director,
Dimensional Investment Group Inc. and Dimensional Emerging Markets Fund Inc.
Public Director, Chicago Mercantile Exchange.
Myron S. Scholes, 55, Director, Greenwich, CT. Limited Partner,
Long-Term Capital Management L.P. (money manager). Frank E. Buck Professor of
Finance, Graduate School of Business and Professor of Law, Law School, Senior
Research Fellow, Hoover Institution, (all) Stanford University (on leave).
Trustee, The DFA Investment Trust Company. Director, Dimensional Investment
Group Inc., Dimensional Emerging Markets Fund Inc., Benham Capital Management
Group of Investment Companies and Smith Breedon Group of Investment Companies.
Rex A. Sinquefield*, 52, Director, Chairman and Chief Investment Officer,
Santa Monica, CA. Chairman-Chief Investment Officer and Director,
Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia Pty
Limited, Dimensional Investment Group Inc. and Dimensional Emerging Markets
Fund Inc. Trustee, Chairman-Chief Investment Officer of The DFA Investment
Trust Company. Chairman, Chief Executive Officer and Director, Dimensional
Fund Advisors Ltd.
* Interested Director of the Fund.
11
<PAGE>
OFFICERS
Each of the officers listed below hold the same office in the following
entities: Dimensional Fund Advisors Inc., DFA Securities Inc., DFA Australia
Pty Limited, Dimensional Investment Group Inc., The DFA Investment Trust
Company, Dimensional Fund Advisors Ltd., and Dimensional Emerging Markets
Fund Inc.
Arthur Barlow, 41, Vice President, Santa Monica, CA.
Maureen Connors, 60, Vice President, Santa Monica, CA.
Truman Clark, 55, Vice President, Santa Monica, CA. Consultant until
October 1995 and Principal and Manager of Product Development, Wells Fargo
Nikko Investment Advisors, San Francisco, CA from 1990-1994.
Robert Deere, 39, Vice President, Santa Monica, CA.
Irene R. Diamant, 46, Vice President and Secretary (for all entities
other than Dimensional Fund Advisors Ltd.), Santa Monica, CA.
Margaret East, 56, Secretary, Dimensional Fund Advisors Ltd.
Eugene Fama, Jr., 35, Vice President, Santa Monica, CA.
David Plecha, 35, Vice President, Santa Monica, CA.
George Sands, 40, Vice President, Santa Monica, CA. Managing Director,
Asset Strategy Consulting, Los Angeles, CA from 1991 to 1992 and previously
Vice President of Wilshire Associates, Santa Monica, CA.
Michael T. Scardina, 41, Vice President, Chief Financial Officer,
Controller and Treasurer, Santa Monica, CA.
Cem Severoglu, 33, Vice President, Santa Monica, CA.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica,
CA.
Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
Directors and officers as a group own less than 1% of the Fund's
outstanding stock.
Set forth below is a table listing, for each director entitled to receive
compensation, the compensation received from the Fund during the fiscal year
ended November 30, 1995 and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation from
Compensation Fund
DIRECTOR from Fund and Fund Complex
- -------- ------------------ -------------------------
George M. Constantinides $ 15,000 $ 30,000
John P. Gould $ 15,000 $ 30,000
Roger G. Ibbotson $ 15,000 $ 30,000
Merton H. Miller $ 12,000 $ 24,000
Myron S. Scholes $ 15,000 $ 30,000
12
<PAGE>
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") serves as the accounting services, dividend disbursing
and transfer agent for all Fund Portfolios and Series of the Trust. The
services provided by PFPC are subject to supervision by the executive
officers and the Board of Directors of the Fund, and include day-to-day
keeping and maintenance of certain records, calculation of the offering price
of the shares, preparation of reports, liaison with its custodians, and
transfer and dividend disbursing agency services. For its services, each of
the Portfolios listed below pays PFPC annual fees which are set forth in the
following table:
U.S. 9-10 SMALL COMPANY PORTFOLIO
.1025% of the first $300 million of net assets
.0769% of the next $300 million of net assets
.0513% of the next $250 million of net assets
.0205% of the net assets over $850 million
PFPC has agreed that it may from time to time limit the fee rates for this
Portfolio.
DFA REAL ESTATE SECURITIES PORTFOLIO
.10% of the first $200 million of net assets
.075% of the next $200 million of net assets
.05% of the next $200 million of net assets
.03% of the next $200 million of net assets
.02% of net assets over $800 million
The DFA Real Estate Securities Portfolio is subject to a $4,900 per month
minimum fee. PFPC has agreed to limit the minimum fee for this Portfolio from
time to time.
LARGE CAP INTERNATIONAL PORTFOLIO
DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO
Charges for each Portfolio:
.1230% of the first $300 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of the net assets over $850 million
The Large Cap International Portfolio and the DFA International Small Cap Value
Portfolio are each subject to a $75,000 per year minimum fee. PFPC has agreed
to limit the minimum fee for these Portfolios from time to time.
DFA FIVE-YEAR GOVERNMENT PORTFOLIO
DFA INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO
Charges for each Portfolio:
.0513% of the first $100 million of net assets
.0308% of the next $100 million of net assets
.0205% of net assets over $200 million
DFA GLOBAL FIXED INCOME PORTFOLIO
.1230% of the first $150 million of net assets
.0820% of the next $150 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
The DFA Global Fixed Income Portfolio is subject to a $75,000 per year minimum
fee. PFPC has agreed to limit the minimum fee for this Portfolio from time to
time.
ONE-YEAR FIXED INCOME PORTFOLIO
U.S. 6-10 SMALL COMPANY PORTFOLIO
U.S. LARGE CAP VALUE PORTFOLIO
13
<PAGE>
U.S. SMALL CAP VALUE PORTFOLIO
RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO
ENHANCED U.S. LARGE COMPANY PORTFOLIO
DFA TWO-YEAR GLOBAL FIXED INCOME PORTFOLIO
DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Charges for each Portfolio:
$1,000 per month (includes custodian fees)
JAPANESE SMALL COMPANY PORTFOLIO
PACIFIC RIM SMALL COMPANY PORTFOLIO
UNITED KINGDOM SMALL COMPANY PORTFOLIO
CONTINENTAL SMALL COMPANY PORTFOLIO
EMERGING MARKETS PORTFOLIO
EMERGING MARKETS SMALL CAP PORTFOLIO
DFA TWO-YEAR GOVERNMENT PORTFOLIO
U.S. LARGE COMPANY PORTFOLIO
Charges for each Portfolio:
$2,600 per month (includes custodian fees)
INTERNATIONAL SMALL COMPANY PORTFOLIO
$2,000 per month (includes custodian fees)
OTHER INFORMATION
For the services it provides as investment advisor to each Portfolio of
the Fund (or, with respect to each Feeder Portfolio, the corresponding Series
of the Trust), the Advisor is paid a monthly fee calculated as a percentage
of average net assets of the Portfolio (or, with respect to each Feeder
Portfolio, the corresponding Series of the Trust). For the fiscal years
ending November 30, 1993, 1994 and 1995, the Portfolios (or their
corresponding Series) paid management fees as set forth in the following
table:
1993 1994 1995
(000) (000) (000)
U.S. 9-10 Small Company Portfolio $3,149 $3,337 $4,045
U.S. 6-10 Small Company Portfolio $ 127* $ 46* $ 57*
U.S. Large Company Portfolio $ 26 $ 11 $ 19
U.S. Small Cap Value Portfolio $ 94 $ 459* $ 976*
U.S. Large Cap Value Portfolio $ 45 $ 143* $ 306*
DFA Real Estate Securities Portfolios $ 75 $ 138 $ 183
Japanese Small Company Portfolio** $1,127 $1,500 $1,704
Pacific Rim Small Company Portfolio** $ 425 $ 962 $1,020
United Kingdom Small Company Portfolio** $ 826 $1,044 $1,096
Emerging Markets Portfolio n/a $ 6* $ 30*
Continental Small Company Portfolio** $1,149 $1,627 $1,781
Large Cap International Portfolio $ 132 $ 148 $ 147
14
<PAGE>
1993 1994 1995
(000) (000) (000)
DFA International Small Cap Value Portfolio n/a n/a $ 299
RWB/DFA International High Book to
Market Portfolio $ 105 $ 536* $ 937*
DFA One-Year Fixed Income Portfolio $ 388 $ 311 $ 310*
DFA Five-Year Government Portfolio $ 256 $ 427 $ 531
DFA Global Fixed Income Portfolio $ 192 $ 311 $ 433
DFA Intermediate Government Fixed Income
Portfolio $ 72 $ 88 $ 102
- -----------------
* The Series has more than one Feeder Portfolio; the dollar amount
represents the total dollar amount of management fees paid by the Series to
the Advisor.
** Prior to August 9, 1996, the Fund on behalf of the Portfolio had an
investment management agreement with the Advisor; the dollar amount
represents the dollar amount of investment management fees paid by the
Portfolio to the Advisor.
The Fund commenced offering shares of RWB/DFA International High Book to
Market Portfolio in May, 1993; Emerging Markets Portfolio in April, 1994; DFA
Global Bond and DFA Global Value Portfolios in August, 1994; DFA
International Small Cap Value Portfolio in December, 1994. The Enhanced U.S.
Large Company, DFA Two-Year Corporate Fixed Income, DFA Two-Year Government
and DFA Two-Year Global Fixed Income, International Small Company and
Emerging Markets Small Cap Portfolios had not commenced operations as of
November 30, 1995.
Until March, 1992, The DFA Intermediate Fixed Income Portfolio and The
DFA Global Fixed Income Portfolio were named The DFA Intermediate Government
Bond Portfolio and The DFA Global Bond Portfolio, respectively. Until
February, 1993, The Pacific Rim Small Company Portfolio was named The
Asia-Australia Small Company Portfolio. Until September, 1995, The DFA
Intermediate Government Fixed Income Portfolio was named The DFA Intermediate
Government Bond Portfolio, The DFA Global Fixed Income Portfolio was named
The DFA Global Bond Portfolio, The Pacific Rim Small Company Portfolio was
named The Asia-Australia Small Company Portfolio, The U.S. Large Cap Value
Portfolio was named The U.S. Large Cap High Book to Market Portfolio, The
U.S. Small Cap Value Portfolio was named The U.S. Small Cap High Book to
Market Portfolio. Until February, 1996, RWB/DFA International High Book to
Market Portfolio was named DFA International High Book to Market Portfolio.
From September, 1995 until December, 1996, The DFA Real Estate Securities
Portfolio was named DFA/AEW Real Estate Securities Portfolio.
PRINCIPAL HOLDERS OF SECURITIES
As of November 30, 1996, the following stockholders owned beneficially at
least 5% of the outstanding stock of the Portfolios, as set forth below.
THE U.S. 9-10 SMALL COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 23.04%
101 Montgomery Street
San Francisco, CA 94104
15
<PAGE>
Pepsico Inc. Master Trust 8.34%
The Northern Trust Company Trustee
P.O. Box 92956
801 South Canal
Chicago, IL 60675
State Farm Insurance Companies 10.12%
One State Farm Plaza
Bloomington, IL 61710
Amoco Corporation Master Trust 8.90%
Employee Pension Plan P94304
P.O. Box 87703
Chicago, IL 60680
Owens-Illinois 5.22%
Master Retirement Trust
34 Exchange Place
Jersey City, NJ 07302
THE U.S. 6-10 SMALL COMPANY PORTFOLIO
Washington University 16.91%
Endowment Fund
P. O. Box 1047
St. Louis, Missouri 63139
The Charles A. Dana Foundation 18.92%
745 5th Avenue, Suite 700
New York, NY 10151
Salvation Army - ETHQ 18.24%
440 W. Nyack Road
West Nyack, NY 10994
Charles Schwab & Company, Inc. - REIN* 13.33%
101 Montgomery Street
San Francisco, CA 94104
Mac & Co.* 6.08%
P.O. Box 3198
Pittsburgh, PA 15230
Northern Telecom Inc. 5.70%
Bankers Trust Co., Trustee
34 Exchange Place
Jersey City, NJ 07302
THE JAPANESE SMALL COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 37.96%
101 Montgomery Street
San Francisco, CA 94104
- -----------------------
* Owner of record only.
16
<PAGE>
BellSouth Corporation Master Pension Trust 34.84%
1155 Peachtree Street, N.E.
Atlanta, GA 30367
THE UNITED KINGDOM SMALL COMPANY PORTFOLIO
Charles Schwab & Company, Inc.-REIN* 41.38%
101 Montgomery Street
San Francisco, CA 94104
BellSouth Corporation Master Pension Trust 39.33%
1155 Peachtree Street, N.E.
Atlanta, GA 30367
John Deere Pension Fund 5.12%
John Deere Road
Moline, IL 61265
THE CONTINENTAL SMALL COMPANY PORTFOLIO
BellSouth Corporation Master Pension Trust 39.05%
1155 Peachtree Street, N.E.
Atlanta, GA 30367-6000
Charles Schwab & Company, Inc. - REIN* 35.98%
101 Montgomery Street
San Francisco, CA 94104
John Deere Pension Fund 5.92%
John Deere Road
Moline, IL 61265
THE LARGE CAP INTERNATIONAL PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 77.74%
101 Montgomery Street
San Francisco, CA 94104
THE U.S. LARGE COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 64.82%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CASH* 9.17%
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin & Jenrette Securities Corp.* 8.03%
P.O. Box 2052
Jersey City, NJ 07303
- -----------------------
* Owner of record only.
17
<PAGE>
THE DFA ONE-YEAR FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 25.20%
101 Montgomery Street
San Francisco, CA 94104
Public School Retirement System 12.89%
P.O. Box 268
Jefferson City, MO 65102
Charles Schwab & Company, Inc. - CASH* 7.55%
101 Montgomery Street
San Francisco, CA 94104
Peoples Energy Corporation Pension Trust 6.06%
130 E. Randolph Dr., 24th Floor
Chicago, IL 60601
THE DFA FIVE-YEAR GOVERNMENT PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 64.61%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CASH* 12.21%
101 Montgomery Street
San Francisco, CA 94104
THE DFA GLOBAL FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 48.22%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CAP* 23.91%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CASH* 9.56%
101 Montgomery Street
San Francisco, CA 94104
THE DFA INTERMEDIATE GOVERNMENT FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 71.44%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - REIN* 18.24%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CASH* 5.31%
101 Montgomery Street
San Francisco, CA 94104
- -----------------------
* Owner of record only.
18
<PAGE>
PACIFIC RIM SMALL COMPANY PORTFOLIO
BellSouth Corporation Master Pension Trust 60.54%
1155 Peachtree Street, N.E.
Atlanta, GA 30367
Charles Schwab & Company, Inc. - REIN* 18.60%
101 Montgomery Street
San Francisco, CA 94104
U.S. LARGE CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 48.76%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CAP* 8.16%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - CASH* 8.97%
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin & Jenrette Securities Corp.* 5.74%
P.O. Box 2052
Jersey City, NJ 07303
DFA REAL ESTATE SECURITIES PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 41.48%
101 Montgomery Street
San Francisco, CA 94104
Owens-Illinois 32.16%
Master Retirement Trust
34 Exchange Place
Jersey City, NJ 07302
Charles Schwab & Company, Inc. - CASH* 12.01%
101 Montgomery Street
San Francisco, CA 94104
U.S. SMALL CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 27.03%
101 Montgomery Street
San Francisco, CA 94104
Mac & Co. * 11.63%
P.O. Box 320
Pittsburgh, PA 15230
- ------------------
* Owner of record only.
19
<PAGE>
Charles Schwab & Company, Inc. - CAP* 9.66%
101 Montgomery Street
San Francisco, CA 94104
The United Church Board For Pension Assets Management 5.25%
One Wall Street, 8th Floor
New York, NY 10286
RWB/DFA INTERNATIONAL HIGH BOOK TO MARKET PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 90.44%
101 Montgomery Street
San Francisco, CA 94104
Donaldson Lufkin & Jenrette Securities Corp.* 8.51%
P.O. Box 2052
Jersey City, NJ 07303
EMERGING MARKETS PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 61.50%
101 Montgomery Street
San Francisco, CA 94104
California Institute of Technology 6.99%
Mail Code 212-31
Pasadena, CA 91125
DFA INTERNATIONAL SMALL CAP VALUE PORTFOLIO
Charles Schwab & Company, Inc. - REIN* 54.85%
101 Montgomery Street
San Francisco, CA 94104
BellSouth Corporation Master Pension Trust 30.86%
1155 Peachtree Street, N.E.
Atlanta, GA 30367
DFA TWO-YEAR GLOBAL FIXED INCOME PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 53.50%
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Company, Inc. - REIN* 44.16%
101 Montgomery Street
San Francisco, CA 94104
ENHANCED U.S. LARGE COMPANY PORTFOLIO
Charles Schwab & Company, Inc. - CAP* 82.46%
101 Montgomery Street
San Francisco, CA 94104
- ------------------
* Owner of record only.
20
<PAGE>
Charles Schwab & Company, Inc. - REIN* 8.46%
101 Montgomery Street
San Francisco, CA 94104
DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Dimensional Fund Advisors Inc. 100%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
DFA TWO-YEAR GOVERNMENT PORTFOLIO
Dimensional Fund Advisors Inc. 100%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
INTERNATIONAL SMALL COMPANY PORTFOLIO
San Diego County Employees Retirement Association 77.89%
1495 Pacific Highway
San Diego, CA 92101
Charles Schwab & Company, Inc. - REIN* 11.09%
101 Montgomery Street
San Francisco, CA 94104
- ------------------
* Owner of record only.
PURCHASE OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "PURCHASE OF SHARES."
The Fund will accept purchase and redemption orders on each day that the
New York Stock Exchange ("NYSE") is open for business, regardless of whether
the Federal Reserve System is closed. However, no purchases by wire may be
made on any day that the Federal Reserve System is closed. The Fund will
generally be closed on days that the NYSE is closed. The New York Stock
Exchange is scheduled to be open Monday through Friday throughout the year
except for days closed to recognize New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day. The Federal Reserve System is closed on the same days as the NYSE,
except that is open on Good Friday and closed on Martin Luther King, Jr. Day,
Columbus Day and Veterans' Day. Orders for redemptions and purchases will
not be processed if the Fund is closed. The TSE is closed on the following
days in 1996: January 1, 2, 3 and 15, February 12, March 20, April 29, May
3, 4 and 6, September 16 and 23, October 10, November 4 and 23 and December
23 and 31. Orders for the purchase and redemption of shares of The Japanese
Small Company Portfolio received on those days will be priced as of the close
of the NYSE on the next day that the TSE is open for trading.
The Fund reserves the right, in its sole discretion, to suspend the
offering of shares of any or all Portfolios or reject purchase orders when,
in the judgement of management, such suspension or rejection is in the best
interest of the Fund or a Portfolio. Securities accepted in exchange for
shares of a Portfolio will be acquired for investment purposes and will be
considered for sale under the same circumstances as other securities in the
Portfolio.
21
<PAGE>
Based on the experience of The U.S. 9-10 Small Company Portfolio,
management believes that any dilutive effect of the cost of investing the
proceeds of the sale of the shares of that Portfolio is minimal and,
therefore, the shares of that Portfolio are currently sold at net asset
value, without imposition of a reimbursement fee. Reimbursement fees may be
charged prospectively from time to time based upon the future experience of
The U.S. 9-10 Small Company Portfolio and other Portfolios. Any such charges
will be described in the prospectus.
REDEMPTION AND TRANSFER OF SHARES
The following information supplements the information set forth in the
prospectus under the caption "REDEMPTION OF SHARES."
The Fund may suspend redemption privileges or postpone the date of
payment: (1) during any period when the NYSE is closed, or trading on the
NYSE is restricted as determined by the SEC, (2) during any period when an
emergency exists as defined by the rules of the SEC as a result of which it
is not reasonably practicable for the Fund to dispose of securities owned by
it, or fairly to determine the value of its assets and (3) for such other
periods as the SEC may permit.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of any Portfolio to make payment
wholly or partly in cash, any Portfolio (except for a Feeder Portfolio) may
pay the redemption price in whole or in part by a distribution of portfolio
securities from the Portfolio of the shares being redeemed in lieu of cash.
Upon such a determination by both the Board of Directors of the Fund and the
Board of Trustees of the Trust, a Feeder Portfolio may pay the redemption
price, in lieu of cash, by a distribution of portfolio securities that the
Portfolio receives from the Series to satisfy the Portfolio's redemption
request. Any such redemption by the Series and/or the Portfolio would be in
accordance with Rule 18f-1 under the Investment Company Act of 1940.
Investors may incur brokerage charges and other transaction costs selling
securities that were received in payment of redemptions. The International
Equity, DFA Two-Year Global Fixed Income and The DFA Global Fixed Income
Portfolios reserve the right to redeem their shares in the currencies in
which their investments (and, in respect of the Feeder Portfolios and
International Small Company Portfolio, the currencies in which the
corresponding Series' investments) are denominated. Investors may incur
charges in converting such securities to dollars and the value of the
securities may be affected by currency exchange fluctuations.
Shareholders may transfer shares of any Portfolio to another person by
making a written request therefore to the Advisor who will transmit the
request to the Fund's Transfer Agent. The request should clearly identify
the account and number of shares to be transferred, and include the signature
of all registered owners and all stock certificates, if any, which are
subject to the transfer. The signature on the letter of request, the stock
certificate or any stock power must be guaranteed in the same manner as
described in the prospectus under "REDEMPTION OF SHARES." As with
redemptions, the written request must be received in good order before any
transfer can be made.
CALCULATION OF PERFORMANCE DATA
Following are quotations of the annualized percentage total returns for
the one-, five-, and ten-year periods ended May 31, 1996 (as applicable)
using the standardized method of calculation required by the SEC, which is
net of the cost of any current reimbursement fees charged to investors and
paid to the Portfolios. Also included is a quotation of the annualized
percentage total return for the Enhanced U.S. Large Company Portfolio for the
period from July 3, 1996 (date of commencement of operations) to October 31,
1996 using the standardized method of calculation required by the SEC.
Reimbursement fees of 1%, 1.5% and 1.5% were in effect from the inception of
the Japanese, United Kingdom and Continental Small Company Portfolios,
respectively, until June 30, 1995. A reimbursement fee of 1% was in effect
from the inception of DFA International Small Cap Value Portfolio until June
30, 1995. Effective June 30, 1995, the amount of the reimbursement fee was
reduced with respect to Continental Small Company,
22
<PAGE>
Pacific Rim Small Company, Japanese Small Company, Emerging Markets and DFA
International Small Cap Value Portfolios, and eliminated with respect to the
United Kingdom Small Company Portfolio. The current reimbursement fee for
each Portfolio, expressed as a percentage of the net asset value of the
shares of the Portfolios, is as follows: Continental Small Company, Pacific
Rim Small Company and Emerging Markets Small Cap Portfolios - 1.00%; Japanese
Small Company and Emerging Markets Portfolios -.50%; DFA International Small
Cap Value Portfolio - .70%; and International Small Company Portfolio -
.675%.
A reimbursement fee of 1% was charged to investors in The U.S. 9-10 Small
Company Portfolio from December 9, 1986 through June 17, 1988. A
reimbursement fee of 0.75% was charged to investors in The Large Cap
International Portfolio from the date of its inception until March 5, 1992.
In addition, for those Portfolios in effect for less than one, five, or ten
years, the time periods during which the Portfolios have been active have
been substituted for the periods stated (which in no case extends prior to
the effective dates of the Portfolios' registration statements).
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
U.S. 9-10 Small Company Portfolio 46.25 22.70 12.42
U.S. 6-10 Small Company Portfolio 38.53 51 MONTHS n/a
---------
19.01
U.S. Large Company Portfolio 27.99 14.25 65 MONTHS
---------
16.88
U.S. Small Cap Value Portfolio 31.35 39 MONTHS n/a
---------
17.7
U.S. Large Cap Value Portfolio 29.01 40 MONTHS n/a
---------
15.67
Enhanced U.S. Large Company Portfolio 3 MONTHS n/a n/a
--------
49.38
DFA Real Estate Securities Portfolio 14.68 41 MONTHS n/a
---------
6.44
Japanese Small Company Portfolio 18.57 1.12 11.69
Pacific Rim Small Company Portfolio 17.69 41 MONTHS n/a
---------
20.39
United Kingdom Small Company Portfolio 17.01 10.39 10.49
Emerging Markets Portfolio 6.97 25 MONTHS n/a
---------
8.45
Continental Small Company Portfolio 2.46 4.01 97.5 MONTHS
-----------
8.66
Large Cap International Portfolio 10.59 58 MONTHS n/a
---------
9.98
23
<PAGE>
RWB/DFA International High Book to 13.65 36 MONTHS n/a
---------
Market Portfolio 11.34
DFA One-Year Fixed Income Portfolio 5.56 5.45 6.79
DFA Five-Year Government Portfolio 5.69 6.77 108 MONTHS
----------
7.62
DFA Global Fixed Income Portfolio 9.35 8.03 66 MONTHS
---------
8.10
DFA Intermediate Government Fixed 3.19 8.14 67 MONTHS
---------
Income Portfolio 8.86
DFA International Small Cap Value
Portfolio 8.85 17 MONTHS n/a
---------
7.44
DFA Two-Year Global Fixed Income
Portfolio 2 MONTHS n/a n/a
--------
6.00
As the following formula indicates, the average annual total return is
determined by finding the average annual compounded rates of return over the
stated time period that would equate a hypothetical initial purchase order of
$1,000 to its redeemable value (including capital appreciation/depreciation
and dividends and distributions paid and reinvested less any fees charged to
a shareholder account) at the end of the stated time period. The calculation
assumes that all dividends and distributions are reinvested at the public
offering price on the reinvestment dates during the period. The quotation
assumes the account was completely redeemed at the end of each period and the
deduction of all applicable charges and fees. According to the SEC formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five-, and ten-year periods at the end of the
one-, five-, and ten-year periods (or fractional portion thereof).
Following are quotations of the annualized total returns for the one-,
five-, and ten-year periods ended May 31, 1996 (as applicable) using a
non-standardized method of calculation which is used in communicating
performance data in addition to the standardized method required by the SEC.
Also included is a quotation of the annualized percentage total return for
the Enhanced U.S. Large Company Portfolio for the period from July 3, 1996
(date of commencement of operations) to October 31, 1996 using a
non-standardized method of calculation. The non-standardized quotations
differ from the standardized in that they are calculated without deduction of
any reimbursement fees charged to investors and paid to the Portfolios which
would otherwise reduce return quotations for the Portfolios with such fees.
Additionally, the non-standardized quotations are presented over time periods
which extend prior to the initial investment in the Portfolios (except for
The Continental Small Company and Large Cap International Portfolios) by
using simulated data for the investment strategies of the Portfolios for that
portion of the period prior to the initial investment dates. The simulated
data excludes the deduction of Portfolio expenses which would otherwise
reduce the returns quotations. Non-standardized quotations are
24
<PAGE>
also presented for the United Kingdom and Japanese Small Company Portfolios
calculated assuming the local currencies of the corresponding Series are
invested and redeemed at the beginning and ending dates of the period. The
local currency calculations ignore the effect of foreign exchange rates on
the investment and only express the returns of the underlying securities of
the Series.
<TABLE>
<CAPTION>
EFFECTIVE DATE/
INITIAL INVESTMENT ONE YEAR FIVE YEARS TEN YEARS
------------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. 9-10 SMALL COMPANY PORTFOLIO 12/22/81 46.25 22.70 12.42
12/22/81
U.S. 6-10 SMALL COMPANY PORTFOLIO 03/06/92 38.53 17.87 10.80
03/20/92
U.S. LARGE COMPANY PORTFOLIO 02/26/90 27.99 14.25 13.76
12/31/90
U.S. SMALL CAP VALUE PORTFOLIO 09/18/92 31.35 21.14 14.11
03/01/93
U.S. LARGE CAP VALUE PORTFOLIO 09/18/92 29.01 18.20 15.28
02/18/93
ENHANCED U.S. LARGE COMPANY PORTFOLIO 02/08/96 23.73 n/a n/a
07/03/96
DFA REAL ESTATE SECURITIES PORTFOLIO 09/18/92 14.68 10.95 4.53
01/05/93
JAPANESE SMALL COMPANY PORTFOLIO
Dollar return 01/14/86 19.77 1.32 11.81
Local currency return 01/31/86 52.62 -3.57 6.57
PACIFIC RIM SMALL COMPANY PORTFOLIO 04/02/91 17.69 41 MONTHS
---------
01/04/93 20.39 n/a
UNITED KINGDOM SMALL COMPANY PORTFOLIO
Dollar return 01/14/86 18.80 10.72 10.66
Local currency return 03/04/86 21.93 12.83 10.12
EMERGING MARKETS PORTFOLIO 04/01/94 8.60 18.52 101 MONTHS
----------
04/22/94 12.30
CONTINENTAL SMALL COMPANY PORTFOLIO 04/15/88 4.02 4.32 97.5 MOS.
---------
Dollar return 04/15/88 8.66
LARGE CAP INTERNATIONAL PORTFOLIO 04/02/91 10.59 58 MONTHS n/a
---------
07/18/91 9.98
DFA INTERNATIONAL HIGH BOOK TO MARKET 05/14/93 13.65 36 MONTHS 17.18
PORTFOLIO ---------
06/10/93 13.20
DFA ONE-YEAR FIXED INCOME PORTFOLIO 06/05/83 5.56 5.45 6.79
07/27/83
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE DATE/
INITIAL INVESTMENT ONE YEAR FIVE YEARS TEN YEARS
------------------ -------- ---------- ---------
<S> <C> <C> <C> <C>
DFA FIVE-YEAR GOVERNMENT PORTFOLIO 05/13/87 5.69 6.77 7.85
05/13/87
DFA GLOBAL FIXED INCOME PORTFOLIO 09/24/90 9.35 8.03 66 MONTHS
---------
11/06/90 8.10
DFA INTERMEDIATE GOVERNMENT 09/24/90 3.19 8.14 67 MONTHS
FIXED INCOME PORTFOLIO ---------
10/22/90 8.86
DFA INTERNATIONAL SMALL CAP VALUE 12/20/94 8.85 17 MONTHS n/a
PORTFOLIO ---------
12/30/94 7.44
DFA TWO-YEAR GLOBAL 02/08/96 2 MONTHS n/a n/a
FIXED INCOME PORTFOLIO --------
02/09/96 6.00
</TABLE>
The Portfolios may compare their investment performance to appropriate
market and mutual fund indices and investments for which reliable performance
data is available. Such indices are generally unmanaged and are prepared by
entities and organizations which track the performance of investment
companies or investment advisors. Unmanaged indices often do not reflect
deductions for administrative and management costs and expenses. The
performance of the Portfolios may also be compared in publications to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. Any performance information, whether
related to the Portfolios or to the Advisor, should be considered in light of
a Portfolio's investment objectives and policies, characteristics and the
quality of the portfolio and market conditions during the time period
indicated and should not be considered to be representative of what may be
achieved in the future.
FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Fund for
its fiscal year ended November 30, 1995, as set forth in the Fund's Annual
Report to stockholders, and the report thereon of Coopers & Lybrand L.L.P.,
independent accountants, also appearing therein, are incorporated herein by
reference. The audited Annual Report does not contain any data regarding
Enhanced U.S. Large Company, DFA Two-Year Corporate Fixed Income, DFA
Two-Year Global Fixed Income, DFA Two-Year Government, International Small
Company and Emerging Markets Small Cap Portfolios because such Portfolios had
not commenced operations as of November 30, 1995.
The audited financial statements of U.S. 6-10 Small Company, U.S. Large
Company, DFA One-Year Fixed Income, U.S. Small Cap Value, U.S. Large Cap
Value, RWB/DFA International High Book to Market and Emerging Markets Series
of the Trust for the fiscal year ended November 30, 1995, as set forth in the
Trust's Annual Report to shareholders, are incorporated herein by reference.
The unaudited financial statements and financial highlights of the Fund
for the six months ended May 31, 1996, as set forth in the Fund's Semi-Annual
Report to stockholders, are incorporated herein by reference. The unaudited
financial statements of the U.S. 6-10 Small Company, U.S. Large Company, DFA
One-Year Fixed Income, U.S. Small Cap Value, U.S. Large Cap Value, DFA
Two-Year Global Fixed Income, DFA International Value and Emerging Markets
Series of the Trust for the six months ended May 31, 1996, as set forth in
the Trust's Semi-Annual Report to shareholders, are incorporated herein by
reference. The unaudited Semi-Annual Reports do not contain any data
regarding Enhanced U.S. Large
26
<PAGE>
Company, DFA Two-Year Corporate Fixed Income, DFA Two-Year Government,
International Small Company and Emerging Markets Small Cap Portfolios and/or
Series, as relevant, because such Portfolios and/or Series had not commenced
operations as of May 31, 1996.
The unaudited financial statements and financial highlights of Enhanced
U.S. Large Company Portfolio, and its corresponding Series of the Trust, for
the period from July 3, 1996 (date of commencement of operations) to October
31, 1996, are set forth on the following pages of this Statement of
Additional Information.
An audited balance sheet dated December 2, 1996, and the report of
Coopers & Lybrand L.L.P., covering such balance sheet for each of Emerging
Markets Small Cap Portfolio and Series, is set forth on the following pages
of this Statement of Additional Information.
A shareholder may obtain a copy of the reports, upon request and without
charge, by contacting the Fund at the address or telephone number appearing
on the cover of the Statement of Additional Information.
27
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
PERIOD ENDED OCTOBER 31, 1996
(UNAUDITED)
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
(UNAUDITED)
TABLE OF CONTENTS
PAGE
DFA INVESTMENT DIMENSIONS GROUP INC.
Statement of Assets and Liabilities................................ 1
Statement of Operations............................................ 2
Statement of Changes in Net Assets................................. 3
Financial Highlights............................................... 4
Notes to Financial Statements...................................... 5-6
THE DFA INVESTMENT TRUST COMPANY - THE ENHANCED U.S. LARGE COMPANY SERIES
Statement of Net Assets............................................ 7-11
Statement of Operations............................................ 12
Statement of Changes in Net Assets................................. 13
Financial Highlights............................................... 14
Notes to Financial Statements...................................... 15-18
This report is submitted for the information of the Fund's shareholders.
It is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus.
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS:
Investment in The Enhanced U.S. Large Company Series
of The DFA Investment Trust Company
(2,372,314 Shares, Cost $23,817) at Value.................... $26,232
Prepaid Expenses and Other Assets.............................. 26
---------
Total Assets.............................................. 26,258
LIABILITIES:
Accrued Expenses............................................... 7
---------
NET ASSETS......................................................... $26,251
---------
---------
SHARES OUTSTANDING, $.01 PAR VALUE
(Authorized 100,000,000).......................................... 2,386,108
---------
---------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE........... $11.00
---------
---------
NET ASSETS CONSIST OF:
Paid-In Capital................................................ 23,861
Accumulated Net Investment Loss................................ (25)
Unrealized Appreciation of Investment Securities............... 2,415
---------
Total Net Assets.......................................... $26,251
---------
---------
See accompanying Notes to Financial Statements
1
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
INVESTMENT INCOME
Income Distributions Received ...............................$ -
-------
EXPENSES
Administrative Services ..................................... 10
Accounting & Transfer Agent Fees ............................ 6
Legal Fees .................................................. 1
Audit Fees .................................................. 1
Filing Fees ................................................. 5
Shareholders' Reports ....................................... 1
Other ....................................................... 1
-------
Total Expenses .................................... 25
-------
NET INVESTMENT LOSS ......................................... (25)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investment Securities ...................... -
Change in Unrealized Appreciation (Depreciation)
of Investment Securities .................................... 2,415
-------
NET GAIN ON INVESTMENT SECURITIES ........................... 2,415
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...........$ 2,390
-------
-------
See accompanying Notes to Financial Statements
3
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Loss .........................................$ (25)
Net Realized Gain on Investment Securities .................. -
Change in Unrealized Appreciation
(Depreciation) of Investment Securities ................ 2,415
-------
Net Increase in Net
Assets Resulting from Operations ..................... 2,390
-------
Capital Share Transactions (1):
Shares Issued ................................................ 24,140
Shares Redeemed ............................................. (279)
-------
Net Increase From Capital Share Transactions ........... 23,861
-------
Total Increase ......................................... 26,251
NET ASSETS
Beginning of Period ......................................... -
-------
End of Period ...............................................$26,251
-------
-------
(1) SHARES ISSUED AND REDEEMED:
Shares Issued ............................................... 2,412
Shares Redeemed ............................................. (26)
-------
2,386
-------
See accompanying Notes to Financial Statements
3
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE ENHANCED U.S. LARGE COMPANY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Net Asset Value, Beginning of Period ............................$ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ......................................... (0.01)
Net Gains (Losses) on Securities
(Realized and Unrealized) .................................. 1.01
-------
Total from Investment Operations ............................ 1.00
-------
Net Asset Value, End of Period ..................................$ 11.00
-------
-------
Total Return ....................................................10.00%#
Net Assets, End of Period (thousands) ...........................$26,251
Ratio of Expenses to Average Net Assets (1) ....................0.68%*(a)
Ratio of Net Investment Loss to Average
Net Assets ..................................................(0.39%)*(a)
Portfolio Turnover Rate ......................................... N/A
- -----------------------------
* Annualized
# Non-Annualized
(1) Represents the combined ratio for the Portfolio and its respective pro-rata
share of its Master Fund Series.
(a) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
N/A Refer to the respective Master Fund Series.
See accompanying Notes to Financial Statements
4
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION:
At October 31, 1996, DFA Investment Dimensions Group Inc. (the
"Fund") consisted of twenty-nine portfolios: The U.S. 9-10 Small Company
Portfolio, The U.S. 6-10 Small Company Portfolio, The U.S. Large Company
Portfolio, The Enhanced U.S. Large Company Portfolio, The U.S. Small Cap
Value Portfolio, The U.S. Large Cap Value Portfolio, The DFA/AEW Real Estate
Securities Portfolio, The Japanese Small Company Portfolio, The Pacific Rim
Small Company Portfolio, The United Kingdom Small Company Portfolio, The
Continental Small Company Portfolio, The RWB/DFA International High Book to
Market Portfolio, The International Small Company Portfolio, The Emerging
Markets Portfolio, The Large Cap International Portfolio, The DFA
International Small Cap Value Portfolio, The DFA Intermediate Government
Fixed Income Portfolio, The DFA One-Year Fixed Income Portfolio, The DFA
Two-Year Corporate Fixed Income Portfolio, The DFA Two-Year Government
Portfolio, The DFA Five-Year Government Portfolio, The DFA Two-Year Global
Fixed Income Portfolio, The DFA Global Fixed Income Portfolio (the
"Portfolios"), and VA Small Value Portfolio, VA Large Value Portfolio, VA
International Value Portfolio, VA International Small Portfolio, VA
Short-Term Fixed Portfolio and VA Global Bond Portfolio (the "VA Portfolios")
The VA Portfolios are only available through a selected group of insurance
products. At October 31, 1996, The DFA Two-Year Corporate Fixed Income
Portfolio and The DFA Two-Year Government Portfolio had not yet commenced
operations. These financial statements relate solely to The Enhanced U.S.
Large Company Portfolio (the "Portfolio").
The Portfolio invests all of its assets in The Enhanced U.S. Large
Company Series (the "Series"), a corresponding series of The DFA Investment
Trust Company. At October 31, 1996, The Portfolio owned 100% of the
outstanding shares of the Series. The financial statements of the Series are
included elsewhere in this report and should be read in conjunction with the
financial statements of the Portfolio.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in preparation of its
financial statements. The preparation of financial statements in accordance
with generally accepted accounting principles may require management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
1. Security Valuation: The shares of the Series held by the Portfolio
are valued at its respective daily Net Asset Value.
2. Federal Income Taxes: It is the Portfolio's intention to qualify as
a regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income tax is required in the financial
statements.
3. Other: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains
and losses on the sale of investment securities are those of specific
securities sold. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Expenses directly attributable to the
Portfolio or to the Series are directly charged. Common expenses are
allocated using methods determined by the Board of Directors.
C. INVESTMENT ADVISOR:
5
<PAGE>
Dimensional Fund Advisors Inc. (the "Advisor") provides administrative
services to the Portfolio, including supervision of services provided by
others, providing information to the shareholders and to the Board of
Directors, and other administrative services. The Advisor provides
investment advisory services to the Series. For the period ended October 31,
1996, the Portfolio's administrative fees were computed daily and paid
monthly to the Advisor based on an effective annual rate of 0.15 of 1%.
Certain officers of the Portfolio are also officers, directors and
shareholders of the Advisor.
D. INVESTMENTS:
At October 31, 1996, gross unrealized appreciation and depreciation for
financial reporting and federal income tax purposes of investment securities
was as follows:
Gross Unrealized Appreciation ............$2,415
Gross Unrealized Depreciation ............ -
------
Net ......................................$2,415
------
------
6
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
------ ------
(000)@
<S> <C> <C>
UNITED STATES - (53.8%)
COMMERCIAL PAPER - (38.1%)
Barclays U.S. Funding Corp. C.P.
5.300%, 01/10/97 ................................................. 360 $ 356,280
Beta Finance, Inc. C.P.
5,480%, 12/06/96 ................................................. 125 124,349
Caisse des Depots et Consignations C.P.
5.570%, 11/01/96 ................................................. 800 800,000
Ciesco L.P. C.P.
5.230%, 11/19/96 ................................................. 1,000 997,385
Corporate Asset Funding Corp. C.P.
5.400%, 12/17/96 ................................................. 930 923,573
Delaware Funding Corp. C.P.
5.280%, 11/08/96 ................................................. 985 983,989
Equipment Intermediation Partnership L.P. C.P.
5.350%, 11/07/96 ................................................. 695 694,380
Glaxo Wellcome P.L.C. C.P.
5.430%, 12/09/96 ................................................. 760 755,734
Internationale Nederlanden U.S. Insurance Holdings (DE) Inc. C.P.
5.390%, 11/01/96 ................................................. 245 245,000
5.250%, 11/22/96 ................................................. 358 356,904
Siemens Corp. C.P.
5.300%, 01/07/97 ................................................. 960 950,498
Stanley Works C.P.
5.260%, 12/16/96 ................................................. 1,070 1,062,725
Triple A One Plus Funding Corp. C.P.
5.250%, 11/15/96 ................................................. 1,030 1,027,897
UBS Finance Delaware, Inc. C.P.
5.260%, 11/01/96 ................................................. 716 716,000
-------
TOTAL COMMERCIAL PAPER (Cost $9,994,901) 9,994,714
---------
BONDS - (11.0%)
Chevron Canada Financial, Ltd. Corporate Bonds
5.600%, 04/01/98 ................................................. 500 498,363
Chubu Electric Power Corporate Bonds
8.250%, 09/25/96 ................................................. 1,000 1,038,400
Ontario-Hydro Corporate Bonds
5.800%, 03/31/98 ................................................. 750 749,552
Pitney Bowes Credit Corp. Medium Term Notes
6.305%, 09/23/98 ................................................. 600 603,505
-------
TOTAL BONDS (Cost $2,879,646) 2,889,820
---------
</TABLE>
7
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
(UNAUDITED)
FACE
AMOUNT VALUE+
------ ------
(000)@
U.S. TREASURY OBLIGATIONS - (3.7%)
U.S. Treasury Bills
** 5.170%, 05/01/97 ...................................... 15 $ 14,618
** 5.190%, 05/01/97 ...................................... 15 14,618
** 5.190%, 05/01/97 ...................................... 15 14,618
** 5.210%, 05/01/97 ...................................... 205 199,775
** 5.350%, 05/01/97 ...................................... 15 14,618
** 5.400%, 05/01/97 ...................................... 15 14,618
** 5.410%, 05/01/97 ...................................... 15 14,618
** 5.420%, 05/01/97 ...................................... 15 14,618
** 5.450%, 05/01/97 ...................................... 45 43,853
** 5.450%, 05/01/97 ...................................... 120 116,941
** 5.475%, 05/01/97 ...................................... 510 497,000
** 5.590%, 05/01/97 ...................................... 15 14,618
--------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $972,848) 974,513
--------
SHARES
------
COMMON STOCK - (1.0%)
Standard & Poors Depository Receipt (Cost $245,609 ....... 3,500 247,625
--------
TOTAL - UNITED STATES ..................................... 14,106,672
(Cost $14,093,004) ----------
FACE
AMOUNT VALUE+
------ ------
(000)@
CANADA - (26.2%)
BONDS - (23.2%)
Alberta (Province of)
9.750%, 05/08/98 .................................... 1,000 808,955
British Columbia (Province of) Series BCCD-E
9.850%, 05/01/98 .................................... 1,000 807,015
Canada (Government of)
8.000%, 11/01/98 .................................... 1,000 796,791
Minnesota Mining & Manufacturing Co.
6.500%, 10/15/98 .................................... 1,000 770,522
Kellogg Co.
6.250%, 10/12/98 .................................... 1,000 772,388
Nippon Telegraph & Telephone Corp.
7.250%, 06/25/98 .................................... 1,000 777,836
8
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
(UNAUDITED)
FACE
AMOUNT VALUE+
------ ------
(000)@
CANADA - (26.2%)
BONDS - (23.2%)
Ontario (Province of)
10.625%, 07/15/98 .................................... 700 $ 574,888
World Bank (International Bank for Reconstruction and
Development)
7.250%, 1,000 ........................................ 1,000 776,493
-------
TOTAL BONDS (Cost $5,910,666) 6,084,888
---------
INVESTMENT IN CURRENCY - (3.0%)
* Canadian Dollars (Cost $794,747) ...................... 797,586
-------
TOTAL - CANADA 6,882,474
(Cost $6,705,413) ---------
FRANCE - (6.1%)
BONDS - (6.1%)
European Investment Bank
6.750%, 05/14/98 .................................... 3,000 612,162
France (Republic of)
4.500%, 10/12/98 .................................... 5,000 990,893
-------
TOTAL BONDS (Cost $1,593,544) 1,603,055
---------
INVESTMENT IN CURRENCY - (0.0%)
* French Francs (Cost $345) ............................. 349
---
TOTAL - FRANCE 1,603,404
(Cost $1,593,889) .................................... ---------
GERMANY - (5.3%)
BONDS - (5.3%)
Abn-Amro Bank N.V.
6.250%, 06/23/98 .................................... 1,000 688,698
Germany (Federal Republic of) Treuhand
6.125%, 06/25/98 .................................... 1,000 687,178
-------
TOTAL BONDS (Cost $1,355,131) 1,375,876
---------
9
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
(UNAUDITED)
FACE
AMOUNT VALUE +
------ -------
(000)@
INVESTMENT IN CURRENCY - (0.0%)
* German Marks (Cost $43) ............................... $ 41
----------
TOTAL - GERMANY
(Cost $1,355,174) ..................................... 1,375,917
----------
NETHERLANDS - (4.7%)
BONDS - (4.7%)
Netherlands (Kingdom of)
6.250%, 07/15/98 .................................... 1,000 616,293
Sara Lee Corp.
6.500%, 05/15/98 .................................... 1,000 615,702
----------
TOTAL BONDS (Cost $1,222,163) 1,231,995
----------
INVESTMENT IN CURRENCY - (0.0%)
* Netherlands Guilder (Cost $106) ........................ 104
----------
TOTAL - NETHERLANDS
(Cost $1,222,269) ...................................... 1,232,099
----------
UNITED KINGDOM - (3.1%)
BONDS - (3.1%)
KFW International Finance, Inc. (Cost $790,928)
7.875%, 07/06/98 ..................................... 500 825,080
----------
INVESTMENT IN CURRENCY - (0.0%)
* British Pound Sterling (Cost $109) ..................... 114
----------
TOTAL - UNITED KINGDOM
(Cost $791,037) ........................................ 825,194
-------
JAPAN - (2.7%)
BONDS - (2.7%)
Deutsche Bank Finance NV (Cost $721,663)
4.375%, 07/16/98 ..................................... 75,000 698,901
----------
INVESTMENT IN CURRENCY - (0.0%)
* Japanese Yen (Cost $24) ................................ 23
----------
10
<PAGE>
TOTAL - JAPAN
(Cost $721,687) ........................................ 698,924
----------
TOTAL INVESTMENTS - (101.9%)
(Cost $26,482,473) ..................................... 26,724,684
----------
11
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
(UNAUDITED)
VALUE +
------------
OTHER ASSETS AND LIABILITIES (-1.9%)
Receivable for Futures Variation Margin................... $ 229,475
Receivable for Equity Index Swap.......................... 219,775
Other Assets.............................................. 1,753,384
Payable for Investment Securities Purchased............... (2,546,812)
Unrealized Loss on Forward Currency Contracts............. (139,937)
Other Liabilities......................................... (9,032)
------------
.......................................................... (493,147)
------------
------------
NET ASSETS - (100.0%) Applicable to 2,372,314 Outstanding
$.01 Par Value Shares (Unlimited Number of Shares
Authorized).............................................. $ 26,231,537
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE............................................... $ 11.06
------------
------------
- -------------------------------------
+ See Note B to Financial Statements.
* Non-Income Producing Securities.
@ Denominated in Local Currency
** Face amount of securities pledged as margin requirement for open futures
contracts.
12
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
INVESTMENT INCOME
Interest.................................................. $ 323
--------
EXPENSES
Investment Advisory Services.............................. 3
Accounting & Transfer Agent Fees.......................... 7
Custodian's Fee........................................... 4
Legal Fees................................................ 1
Audit Fees................................................ 1
Shareholders' Reports..................................... 1
Trustees' Fees and Expenses............................... 1
Other..................................................... 1
--------
Total Expenses....................................... 19
--------
NET INVESTMENT INCOME......................................... 304
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain on Investment Securities.................... 51
Net Realized Gain on Foreign Currency Transactions............ 106
Change in Unrealized Appreciation (Depreciation) of:
Futures.............................................. 1,631
Swap Contract............................................. 219
Investment Securities and Foreign Currency................ 242
Translation of Foreign Currency Denominated Amounts....... (138)
--------
NET GAIN ON INVESTMENT SECURITIES......................... 2,111
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $2,415
--------
--------
See accompanying Notes to Financial Statements
13
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income.................................... $ 304
Net Realized Gain on Investment Securities............... 51
Net Realized Gain on Foreign Currency Transactions........ 106
Change in Unrealized Appreciation (Depreciation) of:
Futures............................................... 1,631
Swap Contract......................................... 219
Investment Securities and Foreign Currency............ 242
Translation of Foreign Currency Denominated Amounts... (138)
--------
Net Increase in Net Assets
Resulting from Operations................................ 2,415
Capital Share Transactions (1):
Shares Issued........................................... 23,972
Shares Redeemed......................................... (155)
--------
Net Increase From Capital Share Transactions............. 23,817
--------
Total Increase........................................... 26,232
NET ASSETS
Beginning of Period..................................... -
--------
End of Period........................................... $ 26,232
--------
--------
(1) SHARES ISSUED AND REDEEMED:
Shares Issued........................................... 2,387
Shares Redeemed......................................... (15)
--------
2,372
--------
--------
See accompanying Notes to Financial Statements
14
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE ENHANCED U.S. LARGE COMPANY SERIES
FINANCIAL HIGHLIGHTS
FOR THE PERIOD JULY 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1996
(UNAUDITED)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Net Asset Value, Beginning of Period......................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................... 0.13
Net Gains (Losses) on Securities
(Realized and Unrealized).............................. 0.93
------
Total from Investment Operations......................... 1.06
------
------
Net Asset Value, End of Period............................... $11.06
------
------
Total Return................................................ 10.60%#
Net Assets, End of Period (thousands)....................... $26,232
Ratio of Expenses to Average Net Assets..................... 0.29%* (a)
Ratio of Net Investment Income to Average
Net Assets................................................. 4.71%* (a)
Portfolio Turnover Rate..................................... 27.55%*
- -----------------------------
* Annualized
# Non-Annualized
(a) Because of commencement of operations and related preliminary transaction
costs, these ratios are not necessarily indicative of future ratios.
See accompanying Notes to Financial Statements
15
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION:
The DFA Investment Trust Company (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940. At
October 31, 1996, The Trust consisted of fifteen investment portfolios: The
U.S. 6-10 Small Company Series, The U.S. Large Company Series, The Enhanced
U.S. Large Company Series, The U.S. Small Cap Value Series, The U.S. Large
Cap Value Series, The DFA One-Year Fixed Income Series, The DFA Two-Year
Corporate Fixed Income Series, The DFA Two-Year Government Series, The DFA
International Value Series, The Japanese Small Company Series, The Pacific
Rim Small Company Series, The United Kingdom Small Company Series, The
Continental Small Company Series, The Emerging Markets Series and The DFA
Two-Year Global Fixed Income Series. These financial statements relate solely
to The Enhanced U.S. Large Company Series (the "Series").
The Enhanced U.S. Large Company Portfolio invests solely in the Series.
The Series also issues its shares to other investors.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Trust in preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles may require management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
1. SECURITY VALUATION: Securities held by the Series which are listed on a
securities exchange are valued at the last quoted sale price. Price
information on listed securities is taken from the exchange where the
security is primarily traded. Securities for which quotations are not
readily available are valued in good faith at fair value using methods
determined by the Board of Directors.
Fixed Income securities held by the Series are valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. Securities for which quotations
are not readily available are valued in good faith at fair value using
methods determined by the Board of Directors.
2. FOREIGN CURRENCY TRANSLATION: Securities, other assets and liabilities
of the Series whose values are initially expressed in foreign currencies are
translated to U.S. dollars at the bid price of such currency against U.S.
dollars last quoted by a major bank. Dividend and interest income and
certain expenses are translated to U.S. dollars at the rate of exchange on
their respective accrual dates. Receivables and payables denominated in
foreign currencies are marked to market daily based on daily exchange rates
and exchange gains or losses are realized upon ultimate receipt or
disbursement. The Series also enters into forward foreign currency contracts
solely for the purpose of hedging against fluctuations in currency exchange
rates. These contracts are also marked to market daily based on daily
exchange rates.
The Series does not isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities held whether realized or unrealized. However, the Series does
isolate the effect of fluctuations in foreign currency rates when determining
the realized gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. Federal income tax regulations;
such amounts are categorized as foreign exchange gain or loss for both
financial reporting and income tax reporting purposes.
16
<PAGE>
Realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from the disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between amounts of interest,
dividends and foreign withholding taxes recorded on the books of the Series
and the U.S. dollar equivalent amounts actually received or paid.
3. Federal Income Taxes: It is the Series intention to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal taxes is required in the financial
statements.
4. Other: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
Discount and premium on securities purchased are amortized over the lives of
the respective securities. Expenses directly attributable to a Series are
directly charged. Common expenses are allocated using methods determined by
the Board of Directors.
C. INVESTMENT ADVISOR:
Dimensional Fund Advisors Inc. (the "Advisor") provides investment
advisory services to the Series. For the period ended October 31, 1996, the
Series' advisory fees were computed daily and paid monthly to the Advisor
based on an effective annual rate of 0.05 of 1%.
Certain officers of the Series are also officers, directors and
shareholders of the Advisor.
D. PURCHASES AND SALES OF SECURITIES:
For the period ended October 31, 1996, the Series made the following
purchases and sales of investment securities (amounts in thousands):
Purchases.......................................... $19,388
Sales.............................................. 4,612
E. INVESTMENT TRANSACTIONS:
At October 31, 1996, gross unrealized appreciation and depreciation for
financial reporting and federal income tax purposes of investment securities
was as follows (amounts in thousands):
Gross Unrealized Appreciation...................... $249
Gross Unrealized Depreciation...................... (7)
----
Net................................................ $242
----
----
F. COMPONENTS OF NET ASSETS:
At October 31, 1996, net assets consisted of (amounts in thousands):
Paid-In Capital.................................... $23,817
Undistributed Net Investment Income................ 304
Undistributed Net Realized Gain.................... 51
Undistributed Net Realized Foreign Exchange Gain... 106
Unrealized Appreciation of Futures................. 1,631
17
<PAGE>
Unrealized Appreciation of Swap Contact............ 219
Unrealized Appreciation of Investment Securities
and Foreign Currency.............................. 242
Unrealized Net Foreign Exchange Loss............... (138)
-------
$26,232
-------
-------
18
<PAGE>
G. FINANCIAL INSTRUMENTS:
In accordance with the Series Investment Objectives and Policies, the
Series may invest in certain financial instruments which have off-balance sheet
risk and concentrations of credit risk. These instruments and their significant
corresponding risks are described below:
1. REPURCHASE AGREEMENTS. The Series may purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to maintain
the value of the collateral subject to the agreement at not less than the
repurchase price (including accrued interest). The agreements are conditioned
upon the collateral being deposited under the Federal Reserve book-entry system
or with the Fund's custodian or a third party sub-custodian.
2. FORWARD FOREIGN CURRENCY CONTRACTS: The Series may enter into forward
foreign currency contracts to hedge against adverse changes in the relationship
of the U.S. dollar to foreign currencies. At October 31, 1996, The Series had
entered into the following contracts and the related net unrealized foreign
exchange loss is reflected in the accompanying financial statements:
<TABLE>
<CAPTION>
Unrealized
Foreign
Expiration Contract Value at Exchange
Date Currency Sold Amount October 31, Gain (Loss)
- ---------- ----------------------------- ---------- ----------- ------------
1996
----
<S> <C> <C> <C> <C> <C>
11/07/96 788,600 Canadian Dollar $582,207 $588,557 $(6,350)
11/07/96 1,059,744 Canadian Dollar 779,109 790,284 (11,175)
11/12/96 5,061,527 French Franc 978,356 989,816 (11,460)
11/18/96 2,127,095 Canadian Dollar 1,570,971 1,585,786 (14,815)
11/18/96 526,392 British Pound 829,067 857,939 (28,872)
Sterling
11/21/96 1,084,691 Canadian Dollar 805,324 809,471 (4,147)
11/21/96 2,136,348 German Mark 1,384,542 1,410,839 (26,297)
11/21/96 80,728,613 Japanese Yen 720,148 708,874 11,274
11/21/96 2,142,704 Netherlands 1,237,842 1,263,911 (26,069)
Guilder
11/22/96 1,036,664 Canadian Dollar 766,707 772,993 (6,286)
11/25/96 1,087,781 Canadian Dollar 808,759 811,165 (2,406)
11/25/96 3,234,712 French Franc 622,959 633,035 (10,076)
12/02/96 1,066,358 Canadian Dollar 792,360 795,618 (3,258)
----------- ----------- ----------
TOTALS $11,878,351 $12,018,288 $(139,937)
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
19
<PAGE>
Risks may arise upon entering into these contracts from the potential
inability of counter parties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currency relative to the U.S.
dollar. The Series will enter into forward contracts only for hedging purposes.
3. FUTURES CONTRACTS. The Series may enter into futures contracts in
accordance with its investment objectives. Upon entering into a futures
contract, the Series deposits cash or pledges U.S. Government securities to a
broker, equal to the minimum "initial margin" requirements of the exchange on
which the contract is traded. Subsequent payments are received from or paid to
the broker each day, based on the daily fluctuation in the market value of the
contract. These receipts or payments are known as "variation margin" and are
recorded daily by the Series as unrealized gains or losses until the contracts
are closed. When the contracts are closed, the Series records a realized gain
or loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
At October 31, 1996, the Series had outstanding 67 long futures contracts
on the S & P 500 Index, expiring December 20, 1996. The value of such contracts
on October 31, 1996 was $23,773,275 which resulted in an unrealized gain of
$1,630,700.
Risks may arise upon entering into futures contracts from potential
imperfect price correlations between the futures contracts and the underlying
securities and from the possibility of an illiquid secondary market for these
instruments.
4. EQUITY INDEX SWAPS - The Series may enter into equity index swaps in
accordance with its investment objectives. A swap agreement obligates two
parties to exchange returns realized on a notional amount agreed upon by both
parties. The obligations of the parties are calculated on a net basis based on
the daily fluctuations in the indices on which the contract is based. The daily
net fluctuation is recorded as unrealized gains or losses by the Series. At the
termination of the agreement, the Series will receive from or pay to the counter
party, the accumulated net unrealized gain or loss, which will then be recorded
as realized.
At October 31, 1996, the Series had an outstanding equity index swap with
Morgan Stanley, dated July 15, 1996 (which represents approximately 8% of the
net assets of the Series), terminating on January 15, 1997. The notional value
of the swap was $2,000,000 and the Series had recorded unrealized appreciation
of $219,775 consisting of $33,426 owed to Morgan Stanley and $253,201 owed to
the Series. Payments made by the Series are based on the London Interbank
Offered Rate (LIBOR) plus 0.10% per annum calculated on the original notional
amount plus accumulated interest added on the monthly LIBOR reset date.
Payments received by the Series are based on the daily value of the S & P 500
Index plus accumulated dividends as expressed in Index points calculated on the
original notional amount.
Risks may arise upon entering into equity index swaps in the event of the
default or bankruptcy of a swap agreement counter party.
20
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE EMERGING MARKETS SMALL CAP PORTFOLIO
DECEMBER 2, 1996
21
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
THE EMERGING MARKETS SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 2, 1996
ASSETS:
Investment in The Emerging Markets Small Cap Series
of The DFA Investment Trust Company
(Cost $1,000) at Value ...................................... $ 1,000
Deferred Organization Costs.................................... 4,980
-------
Total Assets ............................................. 5,980
-------
LIABILITIES:
Organization Costs Payable .................................... 4,980
Reimbursement Fee .............................................. 10
-------
Total Liabilities ........................................ 4,990
-------
NET ASSETS ........................................................ $ 990
-------
-------
SHARES OUTSTANDING, $.01 PAR VALUE
(Authorized 100,000,000).......................................... 99
-------
-------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ................... $ 10.00
-------
-------
PUBLIC OFFERING PRICE PER SHARE .................................. $ 10.10
-------
-------
See accompanying Notes to Statement of Assets and Liabilities
22
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
A. ORGANIZATION:
At December 2, 1996, DFA Investment Dimensions Group Inc. (the
"Fund") consisted of thirty portfolios: The U.S. 9-10 Small Company
Portfolio, The U.S. 6-10 Small Company Portfolio, The U.S. Large Company
Portfolio, The Enhanced U.S. Large Company Portfolio, The U.S. Small Cap
Value Portfolio, The U.S. Large Cap Value Portfolio, The DFA/AEW Real
Estate Securities Portfolio, The Japanese Small Company Portfolio, The
Pacific Rim Small Company Portfolio, The United Kingdom Small Company
Portfolio, The Continental Small Company Portfolio, The International Small
Company Portfolio, The RWB/DFA International High Book to Market Portfolio,
The Emerging Markets Portfolio, The Emerging Markets Small Cap Portfolio.
The Large Cap International Portfolio, The DFA International Small Cap
Value Portfolio, The DFA Intermediate Government Fixed Income Portfolio,
The DFA One-Year Fixed Income Portfolio, The DFA Two-Year Corporate Fixed
Income Portfolio, The DFA Two-Year Government Portfolio, The DFA Five-Year
Government Portfolio, The DFA Two-Year Global Fixed Income Portfolio, The
DFA Global Fixed Income Portfolio (the "Portfolios"), and VA Small Value
Portfolio, VA Large Value Portfolio, VA International Value Portfolio, VA
International Small Portfolio, VA Short-Term Fixed Portfolio and VA Global
Bond Portfolio (the "VA Portfolios"). The VA Portfolios are only available
through a selected group of insurance products. At December 2, 1996, The
DFA Two-Year Corporate Fixed Income Portfolio and The DFA Two-Year
Government Portfolio had not yet commenced operations. These financial
statements relate solely to The Emerging Markets Small Cap Portfolio (the
"Portfolio").
The Portfolio has not yet commenced operations except those related to
organizational matters and the sale of 99 shares to Dimensional Fund
Advisors, Inc. (the "Advisor") on December 2, 1996.
The Portfolio invests all of its assets in The Emerging Markets Small
Cap Series (the "Series"), a corresponding series of The DFA Investment
Trust Company. At December 2, 1996, The Portfolio owned approximately 1%
of the net assets of The Series. The financial statements of the Series
are included elsewhere in this report and should be read in conjunction
with the financial statements of the Portfolio.
Certain officers of the Portfolio are also officers, directors and
shareholders of the Advisor.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in preparation of its
financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
1. Security Valuation: The Portfolio's investment in the Series is
valued based on its proportionate interest in the net assets of the Series.
2. Organization Costs: Organization costs have been capitalized by
the Portfolio and are being amortized over sixty months commencing with
operations. In the event any of the initial shares of the Portfolio are
redeemed by any holder thereof during the period that the Portfolio is
amortizing its organization costs, the redemption proceeds payable to the
holder thereof by the Portfolio will be reduced by the unamortized
organization costs in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of
redemption.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of DFA Investment Dimensions Group Inc. - The Emerging Markets Small Cap
Portfolio:
We have audited the accompanying Statement of Assets and Liabilities of DFA
Investment Dimensions Group Inc. - The Emerging Markets Small Cap Portfolio
as of December 2, 1996. This financial statement is the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of DFA Investment
Dimensions Group, Inc. - The Emerging Markets Small Cap Portfolio as of
December 2, 1996 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 5, 1996
24
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
THE EMERGING MARKETS SMALL CAP SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 2, 1996
ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,501,000
Receivable for Partnership Contribution . . . . . . . . . . 92.500
Deferred Organization Costs . . . . . . . . . . . . . . . . 5,520
-----------
Total Assets . . . . . . . . . . . . . . . . . . . . . 12,599,020
-----------
LIABILITIES:
Organization Costs Payable. . . . . . . . . . . . . . . . . 5,520
Reimbursement Fee . . . . . . . . . . . . . . . . . . . . . 124,688
-----------
Total Liabilities. . . . . . . . . . . . . . . . . . . 130,208
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,468,812
-----------
-----------
See accompanying Notes to Statement of Assets and Liabilities
25
<PAGE>
THE DFA INVESTMENT TRUST COMPANY
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
A. ORGANIZATION:
The DFA Investment Trust Company (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940. At
December 2, 1996, The Trust consisted of sixteen investment portfolios: The U.S.
6-10 Small Company Series, The U.S. Large Company Series, The Enhanced U.S.
Large Company Series, The U.S. Small Cap Value Series, The U.S. Large Cap Value
Series, The DFA One-Year Fixed Income Series, The DFA Two-Year Corporate Fixed
Income Series, The DFA Two-Year Government Series, The DFA International Value
Series, The Japanese Small Company Series, The Pacific Rim Small Company Series,
The United Kingdom Small Company Series, The Continental Small Company Series,
The Emerging Markets Series, The Emerging Markets Small Cap Series and The DFA
Two-Year Global Fixed Income Series. These financial statements relate solely
to The Emerging Markets Small Cap Series (the "Series").
The Emerging Markets Small Cap Portfolio invests solely in the Series.
The Series also issues its shares to other investors.
Certain officers of the Series are also officers, directors and
shareholders of the Advisor.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Trust in preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles may require management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
1. Organization Costs: Organization costs have been capitalized by the
Series and are being amortized over sixty months commencing with operations. In
the event any of the partners' equity is withdrawn by any holder thereof during
the period that the Series is amortizing its organization costs, the proceeds
payable to the holder thereof by the Series will be reduced by the unamortized
organization costs in the same ratio as the value of the initial contribution
being withdrawn bears to the value of the initial contribution at the time of
redemption.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The DFA Investment Trust Company - The Emerging Markets Small Cap Series:
We have audited the accompanying Statement of Assets and Liabilities of The DFA
Investment Trust Company - The Emerging Markets Small Cap Series as of December
2, 1996. This financial statement is the responsibility of the Series'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of The DFA Investment Trust
Company - The Emerging Markets Small Cap Series as of December 2, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 5, 1996
27